Offshore Gambling Bill

Part of the debate – in the House of Commons at 12:42 pm on 25th January 2013.

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Photo of David Nuttall David Nuttall Conservative, Bury North 12:42 pm, 25th January 2013

I am most grateful to my hon. Friend for her intervention. I am pleased to hear that Andy Murray has got through to the final. I am sure that that will generate more business for bookmakers—online and terrestrial—because I am sure that there will be far more betting activity on the Australian open with him in the final than there would have been without his involvement. Following that intervention, I should like to thank my hon. Friend sincerely for her opening speech and for the comprehensive way in which she took the House through the complicated issues in the Bill. She dealt with interventions courteously, and her speech was most informative. I thank her for that.

As I was saying, no fewer than three of the Bill’s sponsors are now on the Government Front Bench: the Under-Secretary of State for Skills, my hon. Friend Matthew Hancock, the Under-Secretary of State for Communities and Local Government, my hon. Friend Brandon Lewis and the Under-Secretary of State for Communities and Local Government, my right hon. Friend Mr Foster. All are now members of Her Majesty’s Government. That is a pretty high success rate, and I suspect that any future Bill on this subject will attract a rush of Members wanting to put their names to it in the hope that that might spur a move to the Front Bench.

I feel rather like the warm-up act before the main event in a theatre, because I am sure that the whole House is waiting to hear from my hon. Friend Philip Davies, if he is fortunate enough to catch your eye, Mr Deputy Speaker. His knowledge of these matters is far greater than mine. As I said earlier, I have no particular knowledge of the horse racing industry or the bookmaking industry. As ever, I am looking at the Bill purely from the point of view of what is best for my constituents.

The Bill has come into being because the Gambling Act 2005 has failed, in that it was designed to make the United Kingdom an attractive place for operators and a magnet for new operators flooding into the UK market.

In fact, it has had the opposite effect, with 18 of the 20 largest operators having moved offshore. This Bill is an important measure. It will impact on the lives of tens of thousands of people employed in the betting industry and tens of millions of customers. Depending on whether clause 4 is included in the Bill, it will have an enormous impact on the horse racing industry.

The UK betting industry employs about 40,000 people across the UK and supports the jobs of some 60,000 more, contributing about £1 billion to the Exchequer every year. Just over half—52%—of the gross gambling yield in the United Kingdom is generated by the retail betting sector, as compared with casinos, for example, which account for only 14% of the gross yield.

Betting and gaming have for many years been a popular pastime for many people. For most, it is a pastime carried out and enjoyed safely and responsibly. The British gambling prevalence survey was carried out by the National Centre for Social Research and in 2010, the Gambling Commission sponsored the third in a series of prevalence surveys. The National Centre for Social Research is an independent social research institute, and the 2010 survey followed on from two previous surveys in 1999 and 2007. The 2010 survey found that 73% of people aged 16 and over—around 35.5 million adults—had participated in some form of gambling in the previous year, while 56% of adults had participated in a form of gambling in the year before that. The difference there, of course, is that some forms of gambling can take place at 16, but others only at 18. It was reported that 4% of adults said that their involvement in gambling had increased in the previous year; for 13% it had decreased; and for the rest it remained the same. In 2011, the bookmakers William Hill reported that its customers had staked almost £80 billion, and that it processed around 1 million bets every single day.

All that gives us some idea of the popularity of the industry and the importance of the measure before us. As the preamble to the Bill states, it is designed to

“Amend the Gambling Act 2005 to regulate remote gambling on a point of consumption basis; to require all operators selling into the British market, whether in the United Kingdom or overseas, to hold a Gambling Commission licence to enable them to undertake transactions with British consumers and to advertise in the United Kingdom; to provide that all relevant operators contribute to the Horserace Betting Levy; and for connected purposes.”

It is perhaps worth asking why it is that an Act passed just eight years ago, which did not come into force until 1 September 2007—in force for less than five and a half years—now requires amendment. What is it that has gone wrong? I would submit that, as with many other previous attempts to try to regulate and control the market—whether it be the betting market or any other market—loopholes soon become apparent as human nature takes effect and people try to get round those controls. The Gambling Act 2005 was in part a consolidation measure, but it was also a reforming measure, seeking as it did to reform and update the regulation of online gambling. The Act also created a new single regulator for the betting industry—the Gambling Commission.

I realise that many people would like gambling to be banned outright, but I do not agree with them. I believe that in a free society it should be for the individual to decide whether or not to gamble. Until 1960 betting was largely illegal in this country, but the Betting and Gaming Act 1960 liberalised the gambling laws and legalised betting shops. However, despite that Act and the Betting, Gaming and Lotteries Act 1963, commercial gambling became a source of criminal activity, and a new Act, the Gaming Act 1968, was therefore necessary. It was largely successful in removing the criminal element from gambling, and it established the Gaming Board as the new regulator for the gambling industry.

The 2005 Act sets out, in its very first section, the three key principles that we must all keep in mind in considering this Bill. Gambling must not be

“a source of crime or disorder”; it should be

“conducted in a fair and open way”; and

“children and other vulnerable persons” should be protected

“from being harmed or exploited by gambling.”

We should be clear about what the Bill seeks to regulate. As I understand it, the remote gambling market covers all betting and gaming transactions that are effected without the customer’s coming into contact—physical contact, that is, as when a customer goes into a traditional bookmaker’s office—with the operator. It covers, for example, the placing of a bet on the telephone or the use of a computer to bet on the internet. It would also cover new mobile technologies—for instance, bets placed via a tablet computer or a mobile telephone.

Most United Kingdom operators started to offer customers the opportunity to place bets online in the mid to late 1990s, as improvements to internet technology opened up the market to a whole new segment of the population who had previously been denied a chance to participate. These were people who, for whatever reason, had been prevented from visiting a bookmaker’s premises—and presumably, for whatever reason, had not been attracted to telephone betting—perhaps because of infirmity, because of the nature of their work, or simply because they lived in a location where there were no bookmakers. The new development enabled customers to play casino games and poker online whenever they chose to do so. Previously such opportunities had been available only to those with access to a casino, of which there were fewer than 150 in the United Kingdom.

The Gambling Commission itself reports that fewer than one person in 100 has a problem with gambling. In other words, 99% of the population who chose to engage in betting do so safely and responsibly, and enjoyably. Our level of problem gambling compares favourably with that in other countries. For instance, the United Kingdom’s rate is lower than the rates in France, where it is 1.3%, South Africa, where it is 1.4%, and the United States of America, where it is 3.5%.

Those who are involved in the industry take their responsibilities very seriously, providing training for their staff so that they can recognise customers who are at risk. It is, of course, legitimate to argue—indeed, it was argued earlier in the debate—that the risk posed to people who are engaged in remote gambling may be greater than the risk posed to those who visit traditional bookmakers’ premises. All licensed gambling operators in the UK have to abide by strict licensing conditions designed to protect and help problem gamblers, and the gambling industry is unique in financing relevant research, education and treatment activities on a voluntary basis. Licensed operators offer clear guidance and advice to customers on responsible gambling and, for example, are clear that gambling should not be used as a source of income or as a means of paying off debt. This year, the industry will be contributing some £6 million to the Responsible Gambling Trust, an independent national charity that works to ensure that the gambling industry in Britain, including the remote gambling industry, retains its world-leading reputation for promoting responsibility in gambling and to demonstrate that legitimate business growth and job creation is balanced with social protection of the weak and vulnerable in our society. Licensed operators also signpost customers to helpful websites such as those run by GamCare, Gamble Aware and Gamblers Anonymous. Nobody wants to see lives ruined by gambling, and this debate gives us an important opportunity to highlight the enormous amount of help available to those struggling with a gambling habit that is perhaps getting out of hand.

As I hope to demonstrate, one problem with the Bill is that it would have many unintended consequences. For example, it runs the risk of forcing customers into the hands of unlicensed operators; they could be forced into the black market and into the hands of operators who may not operate in the same responsible way as the household names on our UK high streets do. We are being told that one of the reasons for trying to regulate offshore gambling is to protect customers, but I have to tell the House that, unfortunately, all the evidence from other countries suggests that that laudable aim will not be achieved.

In essence, the Bill seeks to regulate the internet, and we know from other countries’ attempts to regulate the remote gambling market that it is easier said than done. Different means of enforcement are available—for example, payment process blocking or website blocking. They have all been tried in various guises and all have their shortcomings. We may ask why customers will seek to circumvent attempts at enforcement, but the answer is simple: human nature. It is human nature for customers always to seek out the best value, and operators who are unlicensed in the UK and operating from a jurisdiction where there are fewer controls will be able to spend more on advertising and on marketing. They will be able to keep coming up with new offers to make their offering attractive to customers. It is also possible that they will be able to offer better odds, giving better value to customer, although in reality the UK-based operators will try to match the odds offered by foreign operators and absorb the extra overheads themselves by reducing spending in other areas.

In an attempt to stop customers using companies operating from outside their jurisdiction, other European countries have pioneered the use of restrictive tools to stop customers accessing authorised websites. The three main methods in use are: payment process blocking; website blocking; and the imposition of advertising restrictions. Norway has led the way on payment process blocking as a means of preventing customers from taking advantage of offers from black market operators. It must be said that that has not been entirely successful, because more than half of gamblers said that they play as frequently on foreign websites as they did before the ban came into effect. Norwegian customers soon cottoned on to the fact that if they wished to access blacklisted market products, they could get around the payments ban by using third party payment solutions such as e-wallets.

Another unwelcome side effect was that, as a result of over-zealous compliance by operators, legitimate payments could sometimes be blocked. Website blocking has been tried in Italy and has proved to be just as easily circumvented by the use of technology by end-users or service providers. Consumers can easily get around website blocking by using the internet protocol address of a website rather than the website’s domain name. Alternatively, a blacklisted provider can simply change the name of a blocked site in order to evade a blacklist. A common feature of many markets is the imposition of advertising restrictions. Whatever method of enforcement is used, the mere existence of such a method sends out a signal to customers that there is something out there to which they are being denied access. Human nature being what it is, there will be a natural desire to find out what they are missing out on. Consequently, it is clear that no single measure has been proven to be 100% effective. We have heard much debate this morning, but I have not heard anything about how the Bill will be enforced. What magic bullet do we have in this country that other European countries have been unable to find?

The whole issue of enforcement raises the thorny question that increasingly arises in modern life when we try to put together legislation: to what extent is it possible or indeed desirable to try to regulate the internet? To put it another way, how can we stop people accessing the world wide web? How can their access to the web be restricted? Some might think that such questions were of interest only in closed societies such as North Korea, and although I am not suggesting that that is what is being proposed, it is a dangerous path to venture down. Why should the Government attempt to deny citizens who want to access gaming sites run by overseas operators the right to do so?

It has been suggested that such sites do not offer the same level of protection as those based in the United Kingdom. As my hon. Friend the Member for Rochford and Southend East said, there might well be jurisdictions with a more favourable level of control and regulation. We must not always assume that we have got it absolutely right in this country. Equally, UK customers might well want to seek out the better value that is available from a foreign jurisdiction that has less regulation and is therefore in a position to offer slightly better odds and slightly better value.

Most of the offshore operators used by UK customers are based in Gibraltar or the Isle of Man, jurisdictions whose place on the white list is down to the fact that their regulatory regimes are essentially equivalent to those found in the UK. In any event, is there not a real danger that if these measures become law remote gaming operators not only will be based offshore but will go underground? I am not suggesting for one minute that any of the household names in this country’s market would do that. They will soldier on, and deal with the problems that they face. They will abide by the new restrictions and bureaucracy, and secure a licence, but that will undoubtedly impact on their businesses.

I am worried about new entrants to the market—people we have never even heard of—who could well be located in a distant, unregulated jurisdiction. To that effect, the

Bill will be another complete and utter failure in the long line of failures to try to regulate the market. I suspect that those seeking to regulate the market will realise that that danger would undermine the effectiveness of the Bill. Customers will quickly become aware of competitive black market offerings, whether via blogs or information websites. Value-conscious consumers will actively seek out those operators once they realise that they are more competitive and offer better value than the regulated operators under the Bill.

The 2005 Act regularised the status of online gambling, which had previously operated in a twilight world that was often referred to as the grey market. The Act provided a new legal framework, allowing online operators to locate within the UK under the jurisdiction of the Gambling Commission, and it allowed all remote gambling, or offshore operators, to advertise to UK customers, provided that they were licensed in a jurisdiction within the EEA or were on what the Gambling Commission called the white list which, as we have heard, includes Antigua, Barbuda and Tasmania. Helpfully for those offshore operators, the list includes low-tax jurisdictions such as the Isle of Man and Alderney, so it is not surprising that operators listed on the UK stock market have an obligation to the shareholders to do what is best for them and their employees, and remain competitive. As soon as one operator decides to go, effectively others have to go as well to remain competitive.

The 15% gross profits tax is the root cause of the problem, and that is what the Bill is all about. It may well be argued that when the 2005 Act was introduced the then Chancellor should have been thinking about what was the best rate at which to set the tax. How could the tax rate be reduced to attract more operators to the UK, rather than driving operators offshore? Household names such as William Hill, Ladbrokes and Betfair have all moved offshore.

The Bill, as we have heard, is almost a mirror image of the Gambling (Licensing and Advertising) Bill that has been published by the Government. The first three clauses of the Government’s Bill are identical in all respects to the Offshore Gambling Bill. The only difference, as we have heard, is the addition of a horse racing levy measure in clause 4 of the Offshore Gambling Bill. I am conscious of the fact that other hon. Members wish to catch your eye, Mr Deputy Speaker, and that we have not heard from the Minister or the Opposition spokesman, so I will not go through the Bill in great detail. Suffice it to say there are real problems with it. It is not clear exactly what sort of equipment will be caught by the Act. I know that operators will make their submission to the Government on these matters, and I hope the Government take seriously what they say.

Clause 4 deals with the levy. As we have heard, the levy is a statutory way of transferring money from bookmakers to the racing industry. It was, in essence, a compromise that was reached in the 1960s between bookmakers and the racing industry, once bookmakers were legalised. The Betting Levy Act 1961 created the statutory body, the Horserace Betting Levy Board, which still exists. We have heard concerns expressed about state aid and whether reforming the levy could fall foul of those state aid rules. I do not want to go down that path again, but there are problems and I look forward to hearing the Minister’s views later. I would like to know what advice he has received on the issue of state aid and the legitimacy of potentially bringing the levy within the scope of these reforms.

Much of the debate surrounding the current levy system has focused on the levy in isolation. That is misleading and unhelpful to a sensible debate on the issue. Although the levy may well be in decline for a range of reasons, let us not forget that there are several avenues of funding for horse racing, apart from the levy.

I shall touch on one point that was raised earlier about the amount of racing, as opposed to the other forms of betting that go on. I have from the largest bookmaker in the country, William Hill, figures which show that for its shops, the horse race business accounts for only 25% of revenue. The remaining revenue comes from greyhound racing, football, other sports and gaming. For online gambling, the percentage is even lower. The whole of the sports book accounts for 35% of online revenue, and 65% is made up from other products such as casino games, bingo and poker. So the idea that racing forms a major part of the revenue of bookmakers is not backed up by the facts.

As we heard, there is revenue for the racing industry from on-course bookmakers, overseas picture rights, picture rights for UK betting shops paid through the media rights, and sponsorship. A significant proportion of the sponsorship comes directly from the bookmakers in order to help promote the sport. The amount raised by the levy may be in decline, but the cost of racing to bookmakers is increasing. Racing is now by far and away the most expensive product for bookmakers. Figures collated recently by the Horserace Betting Levy Board show that the combined profits before tax and loan capital repayments of Britain’s race courses—as we heard, there were 60 race courses in 2011—amounted to some £20.9 million, compared with £20.6 million in 2010 and £20.2 million in 2009.

Furthermore, horse racing is not in as bad a state of health as some might think. Rachel Hood, president of the Racehorse Owners Association, said in December that she believed there was more cause for optimism than there had been “for some considerable time”. She added:

“British racing’s funding model has changed so much in recent years and while there remains a lack of total transparency around the issue of media rights, to its credit the Racecourse Association has recently confirmed that by 2013 racecourses will be receiving media rights of at least £84m, nearly £30m more than in 2010.”

I appreciate racing’s need to guarantee prize money and that it needs certainty of funding in order to plan ahead. In the most recent levy agreement, William Hill, Ladbrokes and Coral agreed to guarantee that their combined contribution to the horse racing levy will be not less than £45 million, and Betfair has undertaken to make a contribution to British racing through the levy board, which is assumed to be in the region of £7 million. In response to the latest levy agreement, the chairman of the Horserace Betting Levy Board, Paul Lee, said:

“The Board is extremely pleased to have reached unanimous agreement. This will provide further stability and make possible significant additional expenditure on prize money in 2013. I would like to give recognition to Betting and Racing for the constructive approach that they have taken in seeking early resolution to the terms of the next Levy Scheme.”

Although there are problems facing the horse racing industry—we have heard a lot about them today—it is worth considering that there are problems facing the bookmaking industry, too. Betting shops have been part of our communities for decades. Despite what some would have us believe, there has not been an explosion in the number of betting shops. The number in the UK has, in fact, remained relatively stable over the past decade, at around 8,900 shops. In fact, since the 1960s the betting industry has seen a vast decline in the number of betting shops, because in those days there were close to 16,000 in the UK, and fewer betting shops of course means less money for horse racing. The UK betting industry is already highly regulated and subject to significant levels of taxation. I believe that additional regulation and higher taxation would only make it less likely that the industry will be in a position to consider spending more on supporting horse racing.