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New Clause 15 - Application of the horserace betting levy

Gambling (Licensing and Advertising) Bill – in a Public Bill Committee at 3:45 pm on 19th November 2013.

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‘In article 2 of the Gambling Act 2005 (Horserace Betting Levy) Order 2007/2159, for paragraph 3 substitute—

“(3) Subject to paragraph (4), expressions used in sections 24 to 30 of the 1963 Act shall have the meanings given to them by section 55(1) of the 1963 Act (as that provision had effect immediately before 1st September 2007).

(4) For the purposes of paragraph (3), the definition of ‘bookmaker’ as set out in section 55(1) of the 1963 Act (as that provision had effect immediately before 1st September 2007) shall be modified by—

(a) replacing the comma at the end of paragraph (b) of the definition of ‘bookmaker’ with ‘; or’; and

(b) after paragraph (b) of the definition of ‘bookmaker’ inserting—

‘(c) holds an operating licence under the Gambling Act 2005 which authorises that person to provide facilities for betting,’.”.’.—(Clive Efford.)

Brought up, and read the First time.

Photo of Clive Efford Clive Efford Shadow Minister (Culture, Media and Sport)

I beg to move, That the clause be read a Second time.

Photo of Hywel Williams Hywel Williams Shadow PC Spokesperson (Education), Shadow PC Spokesperson (International Development), Shadow PC Spokesperson (Work and Pensions), Shadow PC Spokesperson (Health)

With this it will be convenient to discuss new clause 16—Power to extend the horserace betting levy to overseas bookmakers —

‘(1) The Secretary of State may by regulations amend any provision or provisions of the Betting, Gaming and Lotteries Act 1963 (c 2) (at a time when the provisions listed in section 15(1)(a) to (c) of the Horserace Betting and Olympic Lottery Act 2004 (horserace betting levy system) have not been entirely repealed by order under that section), the Gambling Act 2005 and/or the Gambling Act 2005 (Horserace Betting Levy) Order 2007/2159 for the purposes of ensuring that each person who holds an operating licence under the Gambling Act 2005 which authorises that person to provide facilities for betting shall be—

(a) liable to pay the bookmakers’ levy payable under section 27 of the Betting, Gaming and Lotteries Act 1963 (c 2); and

(b) subject to the provisions of section 120 of the Gambling Act 2005 (as modified in accordance with the Gambling Act 2005 (Horserace Betting Levy) Order 2007/2159) if that person is in default of such bookmakers’ levy.

(2) Regulations under this section must be made by statutory instrument.

(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.’.

Photo of Clive Efford Clive Efford Shadow Minister (Culture, Media and Sport)

New clause 15 amends the definition in the Betting, Gaming and Lotteries Act 1963 of what constitutes a “bookmaker”. New clause 16 offers the Minister the opportunity to use the Bill to take some reserve powers. As my hon. Friend for Bradford South mentioned, opportunities to legislate on gambling matters do not come around very often. If we do need primary legislation to amend the levy, this is an opportunity to do so. We are saying to the Minister, “Go away and consult on the most appropriate way to deliver that, and then you can implement it without the need to come back here.”

This is an important area, especially for the horse racing industry. In 1961, Parliament established the horserace betting levy. Its duty is to act in accordance with the provisions of the 1963 Act and to collect a statutory levy from the horse racing business of bookmakers and the Tote. The levy is collected from bookmakers as a percentage of the gross profit on their horse race betting business. The majority of the levy income is  distributed by the horserace betting levy board in direct support of horse racing. The Act states that the levy income must be spent on matters including improving the breeds of horses, the advancement and encouragement of veterinary science and veterinary education, and improving horse racing. Parliament’s original intention when establishing the levy was to provide a means of compensating racing for the loss of attendance that was anticipated when off-course betting shops were legalised in 1961.

Today, the levy is still seen as a vital mechanism for ensuring that racing can secure an income for those who use its products. While operationally it has its issues, the principle remains sound—I am sure that all the members of the Committee would endorse that. British racing is the country’s second most popular sport. Some 5.6 million people attended events in 2012. It is the second largest sporting employer. British racing is predominantly a rural industry, and it makes a significant contribution to the British economy, generating about £3.45 billion in annual expenditure and providing direct and associated employment for 85,000 people. There are 58 racecourses across the country, all of which play a vital role in their local communities staging international festivals, national races and local racing.

The yield to racing from the horserace betting levy has fallen from an average of £106 million between 2003 and 2009, the period during which the vast majority of remote betting operators relocated operations offshore, to just £66.7 million in 2012-13. As for knock-on effects, the number of horses in training has fallen by 10.6% between 2008 and 2012, while foal production was down 26.3% over the same period. Betting on racing has remained popular and volumes have held up; it is just that many of the bets are now placed in a way that means the levy is no longer paid.

The move by many betting operators in recent years to offshore locations for their remote gambling arms is the main contributory factor to the decline of the levy. Betting operators licensed offshore for remote operations are not liable to pay the levy on their gross profits on British racing from those sources. The British Horseracing Authority describes that as “free riding”.

The Remote Gambling Association told us last week that the reason for going overseas was the competitive taxation situation, but the knock-on effect has been a move out of jurisdictional responsibility for paying the levy, which is damaging racing. The situation is unfair to horse racing and to those that pay through the levy mechanism, such as Bet365, by entering voluntarily into commercial deals, such as Betfair, or by making arrangements with the sport, such as William Hill, Ladbrokes, Coral and Betfred. British racing estimates that around £20 million a year in potential levy receipts is lost to the industry from offshore remote gambling.

I do not believe that anyone who has held the post of Minister for Sport has not felt that the principle of the horserace betting levy is sound and that Parliament was right to introduce it. Of course, after more than 50 years, both the legislative framework of the levy and the way in which modern betting business is conducted have thrown up challenges. In 1963 we did not have the single European market and rules on state aid, and nor did we have the worldwide web and the opportunity to offer  betting remotely. The legislators then could never have envisaged those changes and it is grossly unfair that racing is left to suffer the consequences.

Those dynamics have changed how we bet and the legislation of the 1960s is in places showing its age. That is why it is so important to correct at least one of the problems—I suggest it is the largest one—with the levy. The racing community tells me that it is the one that would make the most significant difference to its funding.

The proposals in the Bill were first put forward in 2010 by the then Minister with responsibility for sport and gambling, my hon. Friend the Member for Bradford South. In the initial consultation document, he noted the importance of this issue and said that officials were working on a solution. He said on 7 January 2010, when launching the consultation document, “New British Licence Requirements for Overseas Online Gambling Firms”:

“In terms of the Horserace Betting Levy, I remain firmly of the view that all operators taking bets on British races should pay their fair share. There is more to do but I am committed to making sure this happens.”

Subsequently he issued an informal consultation and started to build a policy case. Sadly, the general election then happened, and there has been little progress since.

Since then, the hon. Member for Weston-super-Mare (John Penrose) and the right hon. Member for Faversham and Mid Kent (Hugh Robertson) have been the Ministers responsible, but perhaps the new Minister will tell me how much her Department has put into the matter, and why a Bill has been introduced to deal with overseas operators regarding regulation and, subsequently, taxation, yet nothing has been done for horse racing.

On Second Reading, I set out the chronology of the issue and how Parliament has dealt with it. In 2010, the then Minister responsible for tourism, heritage and gambling, the hon. Member for Weston-super-Mare, responded to a parliamentary question by saying:

“We will be discussing the options with the Levy Board and the racing and betting industries with a view to ensuring the funding for racing is fair, and collected from as broad a base as possible.”—[Official Report, 4 November 2010; Vol. 517, c. 911W.]

At the conclusion of a Westminster Hall debate in 2011, he said:

“It has also been pretty much universally agreed in today’s debate that the current levy system is old-fashioned and, if not broken, in the process of breaking…It is absolutely right for the House to urge the Government to come up with concrete proposals before the end of the year, and I am happy to accept that challenge, in line with the mood of the House.”—[Official Report, 20 January 2011; Vol. 521, c. 1067WH.]

However, since then, we have heard nothing. On 14 July 2011, the Minister announced the Government’s intention to introduce point of consumption licensing for remote gambling, but no commitment was made on overseas betting operators paying the levy.

On 6 November 2012, the then Minister for Sport, the right hon. Member for Faversham and Mid Kent, wrote in a letter to Paul Lee, the chairman of the horserace betting levy board:

“If we are going to replace the Levy, we need to be sure we do it properly and with a structure that is sustainable, enforceable, legally sound and one capable of removing government from the process. My preference is for any replacement to be implemented via primary legislation.”

He therefore granted the levy board six months, later extended to 12 months, to facilitate a multi-year agreement between racing and betting, including the offshore element.

On 3 December 2012, the Government published the draft Gambling (Licensing and Advertising) Bill. It contained no provision in respect of offshore operators contributing to the levy under a point of consumption licensing regime owing to Government concerns about such a measure under state aid rules. On 25 January 2013, the hon. Member for Thirsk and Malton (Miss McIntosh) took control of a private Member’s Bill relating to remote gambling, but the Government again resisted on the basis of state aid rules. Coming up to date, on 19 June this year, the European Commission approved the French proposal for a parafiscal levy on online horse race betting, stating that

“by spreading the burden of financing races equitably between the different operators, the measure allows fair competition between these operators in the newly liberalised market for online horse-race betting.”

On 31 October, in answer to a question I asked about the offshore betting industry, the Minister said:

“I agree with the hon. Gentleman to a certain extent, because the levy was created 50 years ago and does not completely deal with modern betting and racing practices, so, as I have previously said, I will consult. We will take evidence and look at the situation very carefully indeed, and try to find a modern, sustainable and enforceable legal solution.”—[Official Report, 31 October 2013; Vol. 569, c. 1062.]

On Second Reading, she said:

“I also want to consider the question of levy reform more broadly as there might be other options that should be considered and there should be proper consultation before any measures are put in place. I will consult on any options that are sustainable, enforceable and legally sound.”—[Official Report, 5 November 2013; Vol. 570, c. 174.]

We are all in agreement that something needs to happen. We are all on the same page about wanting to see action on the levy. The new clauses would allow us to capture the revenue that should be paid into racing, as Parliament has already determined, from all betting operators that take online and telephone bets on British racing in Britain, wherever they are located. In effect, they would allow us to secure levy payments from exactly those operators that will eventually be brought into the remit of the UK tax regime and will require a Gambling Commission licence to continue to operate in the British market.

It is estimated that such a change in arrangements would be worth about £20 million a year to British horse racing, and it would undoubtedly lead to a healthier sport, and more investment, growth and jobs. It would also create a level playing field among all betting operators. Why should onshore betting operators and those with betting shops pay the full levy while others that are based overseas and do not have a voluntary agreement with British racing do not pay a penny? That unfairly distorts competition. I am sure that my hon. Friend the Member for Newcastle-under-Lyme would agree. Bet365, which has remained onshore and has paid its levies, is located close to his constituency and provides many jobs.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme 4:00 pm, 19th November 2013

I want to put on the record the fact that Bet365 also provides employment in the constituency of Staffordshire Moorlands, the representative of which is a member of the Committee.

Photo of Clive Efford Clive Efford Shadow Minister (Culture, Media and Sport)

As my hon. Friend has said, the fact that Bet365 has remained onshore has not meant that it has suffered in terms of competition or its ability to generate profits, which suggests that some of the concerns about over-regulation are unfounded. We do not want regulations that are too light-touch. Bet365 must be respected for remaining onshore and making a contribution, as an online betting company, to the betting levy.

I understand the frustration of those in the racing industry, who see the Government acting to require overseas betting operators to comply with Gambling Commission regulations, to pay the social responsibility levy, which is a voluntary arrangement, and to pay tax. The only area that will not be harmonised is the requirement to pay the levy. Parliament has already decreed that overseas operators should pay it. It is for the Minister to explain why the Government have not acted further and faster on racing. No doubt the many tens of thousands who work in the sport and the millions who follow it will be listening carefully to what the Government have to say on this matter.

The Bill as drafted does not make any provisions for racing or the horserace betting levy. The sport will not, therefore, receive a return from remote betting activity when it is licensed in the UK by the Gambling Commission. The Government have consistently said that any reform to the levy to capture revenues under a point of consumption licensing regime would constitute state aid. However, that should be a concern of the past, because a recent and comprehensive ruling from the European Commission has addressed that issue. As the British Horseracing Authority said in written evidence:

“A French parafiscal levy on online horserace betting has been approved, recognising Racing’s special status and common interest with the betting industry. It sets a vital precedent and is in the process of being reviewed by DCMS lawyers”.

New clause 15 would update the term “bookmaker”, as contained in the Betting, Gaming and Lotteries Act 1963, to mean that all those who hold an operating licence under the Gambling Act 2005 are deemed to be a bookmaker. The levy board already operates by collecting levies from those who hold a licence. The change would see that extended to overseas operators. Anyone who refuses to pay would be reported to the commission by the levy board as being in breach of their licence. The levy would therefore have holistic coverage. All operators who hold a Gambling Commission licence, whether they are licensed betting offices or remote operators, would be required by law to make levy contributions.

I am of the view that the Bill would de facto do that anyway. It was thought that the act of bringing companies within the onshore regulation regime would bring them into the remit of the Bill, but the DCMS lawyer who gave evidence to us last week ruled that out. I therefore think it best that we rely on new, clear legislation rather than having another round of dispute, delays and messy court cases that will only hurt racing.

New clause 15 would make those things clear. It addresses a significant weakness, and should be enacted now. The Minister may want to look at a more modern and commercial framework for the levy in the long term—something that I know racing would support. However, with the best will in the world, the sport will be waiting several more years for that. In the meantime, racing will be losing out on that vital source of income.

Action has been required on this issue for several years, and the Government must not allow this once-in-a-Parliament opportunity for primary legislation to pass without attempting to resolve it. Otherwise, the promises they have made to the racing industry since 2010 will appear somewhat hollow.

The purpose of new clause 16 is to create a reserve power. It was first suggested to me by the horse racing authorities, which were looking to be constructive in their proposals. We understand that the DCMS might feel that there is a need for further consultation and for further assessment of the implication of the European Commission’s ruling on state aid. This reserve power allows that to happen, giving the Minister the opportunity to consult with the Commission. When the work is complete, if this route of action is the right one, it allows the Minister to deal with the issue.

Surely the Minster can accept this. If not, she must explain why she is rejecting it not only to this House, but to all those on her Benches who support this form of action and the millions in the racing community. This is an opportunity for cross-party unity to set in motion a solution to this problem. I counsel the Minister that there is considerable interest in this issue in the other place, including the very active all-party group. I strongly urge her to accept this amendment or bring forward her own improved amendment, if that is possible, to meet the will of the House. I commend these new clauses and I look forward to hearing the Minister’s response.

Photo of Gerry Sutcliffe Gerry Sutcliffe Labour, Bradford South 4:15 pm, 19th November 2013

I want to reinforce what my hon. Friend the Member for Eltham has said from the Front Bench. This is an opportunity to resolve an issue that has been ongoing for many years. The Minister—and long may she remain in her post until the next election—will be lobbied incessantly by racing and betting on this issue. The good news this year is that there has been no determination, and in fact, both sides of the industry—horse racing and betting—have come together to get to a levy conclusion, which is great news. However, we still have the milestone-round-the-neck of the horse racing levy in reserve, if you like, if those commercial negotiations cannot be concluded. My hon. Friend is right that this is an opportunity to get both sides of the industry round the table to finally get to a conclusion to set the future relationship between racing and betting. They both rely on each other; why they cannot get to a commercial agreement for a longer period remains a problem.

My hon. Friend has talked about the significance that the horse racing industry has to the economy of many rural areas—race courses and so on. It needs to be adequately funded if it is to be maintained in its proper regime. The Bill will make things worse. If the offshore people that are coming onshore do not contribute to the levy, it is not a fair situation and I suspect that the Minister will have her door knocked upon almost every day by the horse racing industry if we do not get to some sort of conclusion. New clauses 15 and 16 offer a way out for the Minister. The former sports Minister gave evidence, in good faith, to say that he thought the issue of state aid was a problem. That does not seem to  be a problem now, so there is an opportunity here to get this matter resolved. I urge the Minister to look at new clause 15 and if she accepts that, fine, but new clause 16 certainly gives a fall-back position. I am sure, as my hon. Friend said, that if we cannot sort this out here today, it will be well debated in the other place, given the horse racing fanatics that are in the House of Lords, and I am sure that we will be returning to it on Report.

Photo of Helen Grant Helen Grant The Parliamentary Under-Secretary of State for Culture, Media and Sport

I am not sure that I understand quite what the hon. Member means by the horse racing fanatics in the other place, but I look forward to finding out.

New clauses 15 and 16 seek to extend liability to pay the horse race betting levy to offshore bookmakers who hold the Gambling Commission licence. I accept that the form of the levy has been an issue for some time and there is a feeling that the Bill provides an opportunity to take this forward, and at the very least, extend liability to pay the levy to offshore bookmakers As I said in answers to the Committee last week, I do not believe we should assume that genuine levy reform lies in merely extending the existing levy scheme, which is now more than 50 years old and does not reflect the modern betting and industries. Therefore, I think that the fairest and most effective way to deal with reform of the levy is to understand and assess options for reform and to consult widely on the sustainable, enforceable and legally sound options that emerge. Genuine levy reform cannot be achieved by the new suggested clauses, only an extension of the current levy.

As I said very carefully—I hope—last week, any extension of the levy to offshore bookmakers as a result of the new clause will need EU Commission approval, because the levy is an existing state aid scheme. I am also not convinced that we should be seeking EU approval for an extension of the current levy when we do not know that that will satisfy the need for proper reform, nor am I prepared to risk jeopardising the financial stability that has been achieved by the four-year voluntary agreements by extending the levy to offshore bookmakers without approval.

The shadow Minister raised the progress to date made by other Ministers. Previous Ministers have held various meetings at various times with a number of people, probably including those referred to in the House of Lords. That has culminated in the four-year deal that was struck recently, and we were very glad that happened, as was referred to by the hon. Member for Bradford South. At the very least, it gives us time. It gives us four years to put our heads together to try and find a solution.

As for taking the power set out in new clause 16 and referred to by the shadow Minister, there has not been proper consultation, and I am not prepared to take a power that may not be appropriate given the lack of clear options being presented at this stage.

Therefore, for all the reasons I have stated, I do not intend to accept either new clause 15 or new clause 16. However, I reassure hon. Members that I want to take the opportunity that has been created by the financial stability of the four-year voluntary agreements to take a  proper look at levy reform, and to consult widely on the sustainable, enforceable and legally sound options that emerge.

Photo of Clive Efford Clive Efford Shadow Minister (Culture, Media and Sport)

I am disappointed by the Minister’s approach, because this area is incredibly important. It is not as though it is a surprise that we are here with this legislation. We have set out its chronology. It has been around since 2009, when my hon. Friend the Member for Bradford South first identified the issue, and it has been consulted on over a long period of time. In fact, it goes back longer than that. It was discussed around the time of the 2005 Act, so it probably goes back nine years. We knew that legislation on remote gambling was coming, and as I have said, several previous Ministers have referred to the need to review the levy.

The Minister says that it is not appropriate at this time just to have an extension and then deal with the matter, but she then goes on to say that there is a problem with accepting a reserve power, because we are nowhere near knowing what to consult on. We are being told that it will be a long time. We know that the opportunities to legislate are few and far between, so in the meantime, racing goes on losing a considerable sum of money, and people estimate that to be in the region of £20 million a year. I say to the Minister that that is not acceptable. I think we can revise the 1963 Act and modernise the term “bookmaker”, so that it covers all those who offer betting on horse racing to customers here in the UK, whether they are remote or land-based, so that in the meantime, a levy is collected, and in the fullness of time, if we have to modernise, we have time to do so.

The Minister says no to a reserve power. We understand that this is a complex issue, which is why the reserve power was proposed. That is why we are saying, “Go away and consult.” The reserve power would give a time scale. What we have is an unlimited, open-ended commitment—they are saying, “We may do it sometime or never”—to introduce a levy that will satisfy the horse racing industry and make it sustainable in the future. This is an important rural industry.

Apart from the general case for the reserve power, there is a moral case for it as well. A great deal of money is invested in the sport to create racing. Horse racing is symbiotic with gambling. We know that the two have been closely associated for many years, but recently we have seen an increasing number of betting operators that make money from the horse racing industry and do not contribute back. In fact, they have gone offshore and are not contributing the full amount to the levy, despite some of the agreements that have been made, which I do not criticise.

It is not a satisfactory situation, but there is a moral obligation on those who make huge sums of money on horse race betting and who put nothing back into the industry. The Minister has got this wrong and I want her to go away and think more about this issue. We will press these two new clauses to a vote, because we have an opportunity to deal with the matter. We can introduce a levy in the interim while the Minister consults, and then we can deal with this matter once and for all after that. This opportunity should not be missed.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 7, Noes 10.

Division number 4 Decision Time — New Clause 15 - Application of the horserace betting levy

Aye: 7 MPs

No: 10 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.