Clause 113

Finance Bill – in a Public Bill Committee at 9:45 am on 25th June 2009.

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Gaming duty

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

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

The clause relates to gaming duty, which we have, in passing, already mentioned during the various discussions on bingo. The clause masks what for some casinos will be a very large increase in the tax paid on participation fees for games of poker. Player-to-player games—those games in which players bet against each other, rather than against the house—are not currently subject to gaming duty. That was felt to be fair because a pub, for example, or, indeed, a casino or any other premises that hosts a game of poker is essentially providing a service and does not make a direct profit from the gambling. In effect, such places charge a fee for the gambling to be housed in their premises and for providing the facilities, but they do not directly profit from the gaming that takes place. Until the Bill was drawn up, VAT rather than gaming duty was thought to be appropriate.

With player-to-player poker, I understand—I have not seen it being played and am going on what one casino has told me—that a casino hosts the event and charges a registration fee. A typical fee might be £5 for an evening, which seems incredibly low, although I am told that the fee can rise to as much as £50 to £100 an hour for large stakes games, particularly if the casino provides more staff to ensure security and the integrity of the game. There seems to be some sense in increasing the participation fee for a higher stakes game compared with games in which people just sit around and play for  lower stakes. I do not know what the lowest form might be, but in those games, I assume that security is less of an issue.

In the clause, the Government propose to bring player-to-player games more widely into the gaming duty regime. The industry has protested about the measure, which will be a familiar theme in many clauses, not only because the rate of taxation will rise from effectively being 15 per cent.—the rate of VAT—to sometimes being as high as 50 per cent., but because there are fears that the measure will drive business out of casinos altogether. One can understand the argument, at least to a certain point.

Photo of Brian Binley Brian Binley Conservative, Northampton South

The clause causes me great concern. We have a casino in Northampton that offers the very facilities about which my hon. Friend is talking in perfectly well run, well ordered surroundings. I am concerned that if the measure drives the high-stakes gambling business underground again, that will help to feed crime and other the antisocial behaviours that casinos, in fact, attempt to prevent.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

My hon. Friend makes a fair point. It would be good to hear from the Minister what consultation there has been with casinos and other parts of the industry and what assessment has been made of the possible antisocial consequences of this decision.

Poker, as we know, can take place almost anywhere with only a few players, a couple of packs of playing cards, some money and the will to play. I must confess to an interest in this matter. A number of people I have known over the past 20 years have played poker in their homes or in pubs—indeed, I used to play when I was a student. If Dave Phillips is listening, he still owes me £58.50. I do not see him in the Gallery, but I have been chasing him for about 20 years. I wonder if a mention of the debt in Hansard might finally prompt him to pay up.

Jesting apart, I say that to make a similar point to that made by my hon. Friend. If poker is driven out of casinos and regulated environments, it will be played only in completely unregulated and unsupervised environments. At the very least, unpaid debts and bad blood will arise and more serious antisocial behaviour and crime could be a consequence. We await the Minister’s views on this matter.

Casinos make the point that the house does not profit from hosting poker games. Poker is different from blackjack or roulette, from which the house effectively takes a cut. I will not say that the house fixes the odds, but we all understand that over time the house will accumulate a certain percentage. Poker is different because it is a player-to-player game. However, many people think that casinos are an appropriate environment for such gambling.

Gaming duty is a gross profits tax that is applied on a sliding scale from 15 to 50 per cent., depending on the profits of the individual casino, rather than the company or sector. Clause 113 follows on from the changes in clause 19, which we have already debated. A premises with a gross gaming yield of less than £1.929 million will be subject to a 15 per cent. rate. Smaller establishments will therefore be subject to the same rate as they currently pay for VAT. The rate rises in another four bands. Establishments with profits of more than £4.915 million  will be taxed at a rate of 50 per cent. With the abolition of VAT on gaming duties, the net result for a larger casino could be that player-to-player poker is taxed effectively at 50 per cent. That is the problem. Smaller establishments are likely to be relatively unaffected by the changes and may even benefit from them when VAT returns to the higher rate of 17.5 per cent. in January 2010.

I have seen no analysis of the new effective tax rate for smaller premises. I would be grateful if the Minister supplied some Treasury estimates. Because they will be brought into the gaming duty net, pubs that host the occasional poker game may now face significant and prohibitive costs. I do not pretend to be an expert on the sector, but it appears that the costs of being brought into the gaming duty net will be prohibitive for small, occasional operators that want to offer such facilities, perhaps to their regular customers who do not usually go there to participate in gambling.

Interestingly, subsection (7) exempts members’ clubs and miners’ welfare institutes from gaming duty, but not pubs and other establishments. I would be grateful for an explanation of that from the Minister.

Photo of Brian Binley Brian Binley Conservative, Northampton South

It is well known that I am a keen supporter of the public house, which has been under immense pressure—many public houses are closing. As well as by entertaining customers and providing the traditional facilities, landlords are trying hard to find additional ways to bring in customers. Does my hon. Friend agree that the measure will accelerate the demise of public houses and will not allow landlords to be creative in that way?

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

My hon. Friend makes a very good point. We discussed at some length the future of pubs and the welfare of the pub sector when the Committee of the whole House debated a clause on alcohol duties. We have to recognise the overall business plans of pubs and the fact that some will need to diversify. I agree with the thrust of my hon. Friend’s intervention.

The industry is worried by the changes. A spokesman came to see me last week and said that the change could drive poker back underground, back to the kitchens and dining rooms and other unregulated and unsupervised environments across the country. It would be helpful to know whether any organisations that represent the sector have been consulted. Has the impact been taken into account and will warnings be issued to alert the occasional operator of the proposed changes in the law?

On a broader note, it will be helpful to hear from the Minister what the Government’s motive is for the proposals in the Bill. I think that she will say that throwing in the duties on person-to-person games together with the rest of the casino’s activities is a simplification measure. I would be grateful if she explained what has changed over the past year that has made her bring forward the proposal now.

The Red Book estimates that £5 million will be raised from incorporating player-to-player games within the gaming duty regime. As I mentioned in the debate on the last clause, the Government’s figure on bingo VAT receipts seemed to imply a £5 million loss on removing VAT from such an activity. If the proposals really are revenue neutral, that would suggest that small poker rooms or casinos will be major beneficiaries because  larger casinos already know that they will be net losers. [Interruption.] I am not sure whether something has happened in the last minute or two. Perhaps I have said something that my hon. Friends profoundly disagree with. I was not aware that that particular paragraph was controversial.

Photo of James Duddridge James Duddridge Opposition Whip (Commons)

My hon. Friend is right to question what is happening. Conservative Members will remove themselves for 10 to 15 minutes to consult with Mecca Bingo and other bingo halls about the bingo strategy that was previously outlined.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

I thank my hon. Friend for that clarification. I had thought for a moment that they were all friends of Dave Phillips and were alerting him to the fact that his £58.50 debt is now in Hansard.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Order. We are getting a little noisy. We know that the Speaker does not like a lot of noise, so can we keep things a little quieter, please?

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

Thank you, Mr. Atkinson. I would appreciate confirmation that it is the case that larger casinos will be the net losers and that the smaller operators—poker rooms or casinos—will be the major beneficiaries. That is, I think, the implication of the figures in the Red Book. Moreover, I should like an analysis of the change in the effective tax rates to which large casinos in particular will be subject. The National Casino Industry Forum believes that the effective tax rate on the player-to-player games will exceed 35 per cent. At the moment, the figure stands at 15 per cent. The forum has criticised the Government for a total failure to consult. It said:

“None of the changes announced have been discussed with the industry at the various meetings held with ministers or officials from the Treasury (or from DCMS), this despite previous assurances that it would do so.”

It seems to fly against the Government’s stated aim of promoting softer forms of gaming within casinos to then significantly increase the tax on some of those forms of gaming. Will the Minister clarify why the industry was not consulted, and what discussions took place with the Department for Culture, Media and Sport with regard to the balance of gaming within casinos and the likely effect of clause 113.

Finally, I should like some clarification as to the purpose of allowing exemptions to be made by statutory order. I have already mentioned two areas of exemption, and I am intrigued to know how the Government will consider future exemptions or perhaps repeal some of the existing ones.

Under what circumstances do the Government foresee the power being used? Although such orders would be subject to the affirmative resolution procedure, the possibility itself of an order coming before us that would fundamentally change the tax status of one of these places could create uncertainty. Old Conservative or trade union clubs offering poker to members could be faced with a bit of a surprise. I realise that that situation is not unique—it is a fairly well-known feature of this place—but I would be interested to hear from the Minister on what grounds she thinks that such an  order might be introduced. The notes in the Bill, and the paragraph on this power in the Financial Secretary’s recent letter, do not appear to explain those procedures, so I would be grateful for some clarification.

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury 10:00 am, 25th June 2009

I offer my condolences to the hon. Gentleman; he appears to have been totally abandoned by every Committee member from his party—was it something he said?

I want to pick up on some of the hon. Gentleman’s points. The thrust and reasoning behind the clause is for consistency with other gambling sectors. It ensures that such gaming is exempt from VAT, but subject to the relevant gambling duty. Card room fees will therefore come under gaming duty. I also want to make it clear that pubs are not included, because the clause limits gaming duty to high-stake gaming, which, under social law, is permitted only on casino premises. Poker played in pubs and elsewhere for small stakes and prizes will not be drawn into the gaming duty by this measure. Someone mentioned that originally card rooms were considered as a service and not a profit for the house. The fees received for casino card rooms are now taxed on a consistent basis with other gambling activities. That is the thrust behind the clause.

Photo of Greg Hands Greg Hands Shadow Minister (Treasury)

The Minister says that fees will be taxed on a consistent basis, but surely she must realise the fundamental difference between a participation fee on poker and the house taking a cut on something such as blackjack. Was she aware of the difference when she considered the background to the clause?

Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury

I am certainly aware of that difference, but we are considering gambling and gaming as a whole. I see the hon. Gentleman’s point about narrowness, but we are looking for consistency across gambling regimes.

I want to return to the point about consultation. In autumn 2007, we announced that we would reconsider the taxation of casino card rooms, and in 2008 and 2009 we received representations from the industry. Those suggested that card rooms were just a small part of the casino model and that many casinos did not offer player-to-player gambling. We concluded, therefore, that for consistency with other gambling regimes, fees should be VAT exempt, but be taxed under the relevant gambling duty.

The hon. Gentleman asked why we had included the option for exemptions under affirmative order. We have done so in case the social law changes the places permitted for high-stakes poker, in which case we would need the ability to change the legislation here. The second part of the clause was the result of a simplification request from the Gambling Commission and the casinos sector. Previously, individual casino games were listed in the Finance Act and new games had to be added through secondary legislation whenever the regulator wished to trial new games. That was a really cumbersome process, and this clause removes the need to list these games individually in tax legislation. It should facilitate the industry and the regulator in trialling new games quickly and in the certainty that the tax law captures them.

Question put and agreed to.

Clause 113 accordingly ordered to stand part of the Bill.