Clause 6 - General betting duty and pool betting duty: relief for losses

Finance Bill – in a Public Bill Committee at 10:15 am on 15th May 2003.

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

Photo of John Healey John Healey The Economic Secretary to the Treasury

We turn now to general betting duty and pool betting duty. For about a year and a half now, we have had in place a reformed taxation system based on a new gross profits tax on betting. When we introduced those reforms, they were a radical and bold response to a difficult and rapidly changing competitive environment for our betting industry. They represented a fundamental shift in the approach to taxation in that sector.

We have now completed a review of the reforms and I am happy to be able report that bookmakers, racing representatives, academics and industry observers widely hold them to have been a significant success. John Brown, chairman of William Hill, speaking at the British Horseracing Board annual general meeting last year, said that the implementation of the gross profits tax was

''truly momentous. The significance of which cannot be over estimated. The new tax changes everything—the basis is now fairer, it is set at a sensible rate, and thus enables the bookmaker to stand the tax, without deductions from the punter. It represents forward thinking of the best possible sort''.

I am quoting because I would hesitate to make this claim myself. Mr. Brown continued:

''GPT will prove to be the single most important and influential development in betting and racing in 30 years.''

I shall not embarrass my hon. Friends by citing other commentators who have made similar remarks—

Photo of John Healey John Healey The Economic Secretary to the Treasury

Since my hon. Friend presses me, an article published last year in The Economic Journal concluded:

''The switch to a gross profits tax is likely to lead to lower prices and enhanced consumer welfare . . . Further, the switch will . . . enhance the ability of UK betting firms to compete in an increasingly competitive environment.''

Research has indeed confirmed that the gross profits tax is more efficient, fairer and more sustainable than the former regime.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr

Does the Economic Secretary have any quotations or positive assessments made by the betting industry since the Budget or the publication of the Finance Bill that he can share with the Committee?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I am grateful to the hon. Gentleman. As it happens, I published a report yesterday containing the results of the review, so I can bring him and the Committee bang up to date by summarising one or two of its main findings.

The report shows that since the reform, betting shops have experienced an increase in turnover of 82 per cent., almost half of which is attributable to the gross profits tax. It shows that 2,000 jobs have been created in the industry in the UK, and that internet and niche gambling sectors have had a significant

boost—the previous duty on stakes was a greater burden to such small operators because their margins were tighter, so that is a significant gain from the new system. The report also shows that the benefit of betting offshore or illegally, which was a serious problem for the industry, has been removed and that the level of illegal bookmaking has been significantly reduced. Finally, it shows that international business appears to be drawn to the UK. Although it is still too early to quantify, at least one large chain has reported a 10 per cent. increase in overseas sales since the introduction of the gross profits tax.

None the less, because the review threw up some questions from the industry for the Government, we are taking the opportunity it provides to make some further improvements to the new regime. We are doing that through this clause and the related clauses 7 and 8. At present, if a bookmaker makes a loss over an accounting period, although no duty is payable because no profit is made, that loss cannot be carried forward to the next accounting period to be offset against future profits. During the review, some smaller bookmakers and spread betting firms argued that, when they made a loss over an accounting period, the lack of a carry-forward facility meant that over a year they paid a higher effective rate of duty than 15 per cent. on their gross profits over the year as a whole. Having considered the merits of the bookmakers' argument, the Government have decided to refine the betting provisions to allow them to carry forward losses between accounting periods. For consistency, the arrangements also apply to pool betting operators.

I hope that the Committee will realise that the clause demonstrates the Government's commitment to consult, to listen to the industry, to respond when there is good evidence and a good case is put to them, and to refine the regime accordingly. On that basis, I commend the clause to the Committee.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I recognise that it must have been in order, because otherwise you would have brought it to the Economic Secretary's attention, Sir Nicholas, but clearly his introduction was to the whole group of clauses rather than specifically to clause 6.

It was quite interesting that the Economic Secretary said that he was hesitating. I have never before noticed him hesitate to heap praise on himself and the Government. When he was called for an encore, he seemed to have one well prepared—a well rehearsed pat on his own back. Perhaps he is concerned with a new game of who can pass the bucket fastest, but that for him to decide.

The Economic Secretary is right to say that we are dealing with a rapidly changing industry. Whenever there is change, it is appropriate to consider during the fundamental redrawing the settlement between activities that are taking place and the proper approach to the element that will eventually benefit the public purse through revenue raising. I do not take issue with the approach on gross profits tax.

Although I do not want to stand in the way of progress and development in the industry, we should not lose sight of the effect that the tax regime and the way in which the industry is developing are having.

This is yet another example of arguments about services, opportunities and entertainments in localities and communities. We are deeply concerned on behalf of our constituents about community post offices and pharmacies, given the rate of closures and threatened closures; so it is with the pleasure of many of our constituents who like to have a bet and take part in gaming in other ways.

Although it would be wholly inappropriate to say that the matter should be the subject of a regulatory impact assessment, it is right to seek an assurance from the Economic Secretary that, when considering such matters, the Government genuinely acknowledge at all times the effect on communities and opportunities for people, as opposed to simply industrial, commercial and taxation issues, which may become clinical unless there is determination to hold on to the community aspect. The businesses in question are meant to serve and to entertain their customers, who are using their hard-earned, post-tax money.

On clause 6—perhaps this is unsurprising but it should be recorded none the less—it is nice to see the Government trying to get the law right at the second time of asking. The clause allows for losses that occur when winnings paid out by bookmakers exceed lost bets to be carried forward to offset gross profits in the following accounting period; that applies to both stake and pool betting and is in line with the general hopes and expectations of the interested parties. The clause will, of course, take effect from 1 September. It would be helpful if the Minister were to ensure through his reply that there is an absolute understanding about the following accounting period—it is obvious, but it would be helpful to have a clarification on the record.

One significant issue is not transparent: what is the position on carrying back losses? If there is relief for losses where winnings paid out by bookmakers exceed lost bets, what is the position on carrying back losses to prior accounting periods? Does the clause provide for that? It would be helpful to hear the Minister's observations. If the issue has not been considered or covered, it clearly should be and he should examine it. He may well have been advised that other accounting provisions cover it according to the entity, individual or business affected.

We considered many of the issues relating to the general application of GPT when we had our extremely important, although sadly unconsensual, debate on bingo in the Committee of the whole House. That debate has continued to resonate loudly within communities interested in bingo, and many of the issues relating to bookmakers have similar community bases. We should ensure that everything is done to facilitate the more modern approach that is appropriate under GPT, given how the whole business is developing. I look forward to the Minister's responses to those questions.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

We, too, broadly welcome the thrust of the Government's reforms in relation to GPT. I should like briefly to press the Minister on one issue, which, as the hon. Member for Eddisbury mentioned, came out of the debate on bingo. Without going off the topic—the right hon. Member for Fylde mentioned this earlier—I should like to discuss the consistency of

Government taxation across certain areas. When we discussed bingo, we were disappointed that the Economic Secretary was unwilling to be open about the Treasury's approach to the taxation of different forms of gambling. Can he reassure us that the Treasury seeks neutrality between different forms of gaming, betting and gambling?

Most economists assume that Treasury policy is based on neutrality. In other words, one assumes that the Treasury is aiming to get to a point at which there is no incentive—this touches on clause 7, but I do not want to anticipate that argument—to choose one form of betting or gaming over another given how the different forms are taxed. Earlier, the Economic Secretary seemed to indicate that there was no Government policy to align and neutralise the taxation of different forms of gambling, which was surprising and disappointing. Referring two days ago to the implications of offshore activity and the potential evasion of tax, he sensibly said that that was an area in which an argument could be made for not having a neutral tax structure. However, when pressed, he was not willing to indicate that there was a more general Government commitment to tax neutrality in respect of betting and gaming.

Can the Economic Secretary tell us more about the Government's intentions regarding tax neutrality between different forms of betting and gaming? Is it the Government's broad approach to seek to achieve neutrality? Finally, is he willing to publish an assessment of the tax burden on different forms of betting and gaming so that we can assess whether neutrality has been achieved?

Photo of John Healey John Healey The Economic Secretary to the Treasury 10:30 am, 15th May 2003

The hon. Member for Yeovil raises the same points that he raised earlier. I entirely respect your judgments and decisions, Sir Nicholas, but his comments go much wider than the clause with which we are dealing.

When the hon. Gentleman put those points to me earlier, it was not that I was unwilling to explain the Government's position on tax neutrality but that my approach was different from his. I explained that the Government's approach to the reform of gambling and gaming taxation was a consistent one, not an equalising one. The reason for that is simple. We are dealing with an outdated, over-complex and over-burdensome taxation system for gambling and gaming. We have applied consistent principles to the reforms that we propose and those that we have already put in place: they are to remove some of the costs and complexity of compliance, to improve the prospects for growth in those industries and to produce a better deal for those who participate—the punters or players.

However, although the principles and approach are the same, the circumstances of the different gambling and gaming industries are different. When we were considering reform of the betting system—some of my hon. Friends are more expert on this than I am—we were faced with a UK industry that was increasingly moving offshore and on to the internet. We were faced with totally different circumstances when dealing with

the reform of bingo, on which the hon. Gentleman pressed me earlier.

To avoid doubt and at the risk of repeating myself, the approach that we take to reform and the principles underlying it are consistent, but it is not the Government's policy purpose to have an equalised approach across the gaming regimes.

Photo of John Healey John Healey The Economic Secretary to the Treasury

No, I have dealt with the point. Let me turn to the question of the hon. Member for Eddisbury about how carry-forward losses would work. It might help if I first give an example and then deal with the carry-back question. If in a four-month period a bookmaker made a loss of £5,000 in one month and a profit of £10,000 in each of three months, he would pay tax of £4,500, or 18 per cent. of gross profits, if he could not carry forward the loss, rather than £3,750, or 15 per cent. of gross profits.

The following accounting period is the one after the loss-making accounting period, so there is no carry-back provision in the clause. It is small bookmakers and financial spread betters who are at greatest risk from losses during accounting periods and who are most likely to benefit from the clause.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

The Economic Secretary will realise that I raised the point not as a criticism, but as a matter for clarification. Professionals who advise various clients, large and small, raised it. The question has drawn an answer on the record, and I dare say that he is aware that it may be something on which many professionals rely when clarifying the position.

Photo of John Healey John Healey The Economic Secretary to the Treasury

I hope that the hon. Gentleman does not feel that I was trying to be anything other than helpful by giving him the clarification that he wants. It may be that professional advisers have put those questions to him. As I understand it, they were not raised by the industry during the work that we have done in framing the reform. Were we to look at a carry-back provision, it would add some complexity of compliance to the system, which would have to borne in mind.

I welcome the hon. Gentleman's recognition of the success of the reforms to betting taxation that we have made. He is right to say that customers have to be central to that process. Through those reforms we have given customers and punters what he might call a fair deal. On that basis, I hope that the Committee will approve the clause.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.