Clause 117 - Rates of machine games duty

Finance Bill – in a Public Bill Committee at 5:45 pm on 10 June 2014.

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Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 5:45, 10 June 2014

I beg to move amendment 52, in clause 117, page 96, line 7, at end insert—

‘(7) The Chancellor of the Exchequer shall, within three months of Royal Assent, undertake a review of the impact of the higher rate of machine games duty introduced under this section.

(8) The report referred to in subsection (1) above must in particular examine the impact of the higher rate on—

(a) the net profitability of category B2 gaming machines compared with other categories;

(b) the prevalence of category B2 machines;

(c) the usage of category B2 games compared with other category games;

(d) the number and prevalence of betting shops on high streets; and

(e) problem gambling as a result of category B2 games.

(9) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.”

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

With this it will be convenient to discuss clause stand part.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

The clause relates to machine games duty, the tax charge on dutiable machine games, where customers pay to play in the hope that they will win a cash prize. The clause provides for measures that introduce a new higher rate of machine games duty, chargeable on any gaming machines where the charge payable for playing exceeds £5. The higher rate of MGD is aimed specifically at a certain category of gaming machine, known as B2 machines, where players can stake up to £100 a play. By contrast, most other category machine games are limited to £2 stakes or less.

There has been much controversy around these machines, which are known as fixed odds betting terminals. I will discuss these later, but there is no doubt that they are increasingly prevalent and frequently used on the high street and in betting shops in particular.

Photo of Mike Kane Mike Kane Labour, Wythenshawe and Sale East

I do not think my hon. Friend explained the full facts. It might be £100 a play, but a play can take place every 20 seconds.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank my hon. Friend for his intervention. I will go on to explain the full facts—don’t you worry, Mr Streeter. It is the Government’s view that B2 machines in particular, with their higher stake limits, are extremely profitable in comparison with other, lower-stakes machines. The Chancellor therefore announced in the Budget that a new, higher rate of MGD was necessary to increase the fairness of the tax system by making the more profitable high street gaming machines pay a higher rate of duty. The Budget document elaborated further by stating that this new higher rate on the high-stake B2 machines would

“bring their profitability more into line with other gaming machines on the high street.”

The measure follows the Government’s announcement on wider measures to “protect players further”—as the Under-Secretary of State for Culture, Media and Sport, the hon. Member for Maidstone and The Weald (Mrs Grant) recently stated—when using high-stakes gaming machines on the high street. I will come to those measures in more detail shortly, but the Opposition believe that, together with the higher rate of machine games duty provided for in the clause, they do not go far enough in addressing the concerns of local people and local authorities about protecting at-risk gamblers and high streets. The Opposition have therefore tabled amendment 52, which calls for the Government to conduct a thorough review of the impact of the changes on a number of areas. These include the profitability of B2 machines, as per the Government’s stated aim, the number of betting shops on the high street, which was a concern expressed by local authorities, and the prevalence of problem gambling.

Before I turn to the amendment, however, I want to put some of the measures into context. Machine games duty was introduced by the coalition Government on 1 February 2013, replacing the duty regime on gaming machines known as amusement machine licence duty, a band of licence duty that gaming machines were liable for in addition to VAT. The duty was banded according to the different seven categories of machine, which are categorised according to the amount required to play the game, the stake and the maximum prize available—the winnings. The B2 category was created under this regime to account for high-stake gaming machines where the maximum stake is £100 and the maximum win is £500.

The coalition Government replaced that regime with machine games duty in the Finance Act 2012, which also exempted gaming machines from VAT. The Government said it was necessary to put the tax on gaming machines on a more sustainable footing to protect tax revenues and to ensure that the operators of gaming machines continued to make a fair contribution to tax receipts. Machine games duty is charged on the net takings—stakes less prizes—from the playing of dutiable machine games.

The expanded structure is significantly simplified compared with the former regime. There are now only two rates of machine games duty: a reduced rate of 5%, which applies to machines with a maximum charge payable for playing of 20p and a maximum cash prize of not more than £10, which is known as a type 2 machine; and a standard rate of 20%, which applies to any other machine with a charge payable of more than 20p and a cash prize of higher than £10, which is known as a type 1 machine.

The clause replaces paragraph 5 of schedule 24 to the Finance Act 2012 with a proposed new paragraph 5, which instead makes provision for three types of machine, again defined by reference to the highest charge payable for playing a game and the highest cash prize that can be won from the game. The lower rate is applicable to type 1 machines, with a maximum stake of 20p and maximum winnings of £10, the standard rate applies to type 2 machines, with a maximum stake of £5—although there is no reference to maximum winnings—and the higher rate applies to type 3 machines, which the legislation describes as “any other machine”. In addition, the clause provides that the specified values that define the machine types may be increased by secondary legislation. The measures will have effect on or after 21 March 2015.

Before I turn to the Opposition amendment, I want to seek clarification on the operation of the higher rate of tax. The Government’s stated intention for the new, higher rate of tax on high-stakes gaming machines is to bring their profitability more into line with other gaming machines, yet there are concerns that the tax may apply more broadly than to just high-stakes games. The clause implies that the higher rate of machine games duty will apply to the machine—whether a type 1, 2 or 3 machine—as opposed to the games being played on them. As the Minister knows, more than one type of game is playable on a number of machines, so some machines will have both type 2 and type 3 games installed on them. My understanding is that the rate of duty applicable to the machine will be based on the highest-stake game on the machine. In other words, the higher rate of duty will  be applicable to all games on a machine, regardless of their individual maximum stakes, if a type 3 game is being played on it.

Will the Minister confirm whether that is indeed the Government’s stated policy intention? If so, will he set out the reasoning behind it? I am interested to hear from him whether the impact of the policy—taxing some type 2 games, as well as type 3 games—was factored into the Treasury’s policy costings. The Budget policy costings document states that the Government expect the measure to raise £95 million a year for the four financial years following its introduction next March. Have those policy costings taken account of the fact that they will also impact on the profitability of lower-stakes games and may therefore affect their prevalence? In that case, might the Treasury have overestimated the revenue that the 25% rate of machine games duty will raise?

That leads to a wider point that I would be grateful if the Minister addressed. If the higher rate of tax will impact on lower-stake games, does it not risk their viability and thus their availability? If it risks undermining those games where the stakes are a fraction of the £100 per spin games that are strongly linked to problem gambling, it might have the perverse effect of creating a proliferation of type 3 games and reducing the availability of lower-stake games. The tax is at the same level regardless of the size of the stake being played. The Government’s stated aim is to bring the profitability of higher-stake games more into line with lower-stake games, but concerns have been expressed that, with these measures, they risk throwing out the baby with the bathwater. I would be grateful if the Minister addressed some of those concerns in his response.

Amendment 52 calls on the Government to review the impact of the measures on several of the biggest concerns surrounding fixed-odds betting terminals. Central to the debate about FOBTs and the higher-stake gaming machines are questions about their impact on local areas and the extent to which they fuel problem gambling.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar 6:00, 10 June 2014

I am conscious that neither the hon. Lady nor I were in the previous Parliament, but has she looked at the impact assessment carried out by the previous Government when they introduced such terminals to the high street? Does she agree that many of the problems that we now see were entirely predictable? I am curious to know whether they were predicted at the time.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My concern is that we seem to lack the data to assess the situation. We are legislating for a change in the tax regime, and other activity is going on elsewhere to deal with other concerns associated with FOBTs. It has been accepted—I will go on to explain where—that there is a lack of evidence and data that would enable us truly to understand the impact of those games. We know that there has been a significant proliferation in recent years, so I do not think that it would particularly help the discussion if we were to reflect back on whichever year the hon. Member for Redcar is referring to.

The two key concerns that I mentioned are the impact on local areas and the impact on problem gambling. The first relates to concerns about the prevalence of  betting shops on high streets. There are concerns about betting shops clustering on high streets as a result of the cap of four FOBTs per shop and the relatively lax planning laws on the matter. In February, the Local Government Association highlighted research from Deloitte that found that 52% of respondents wanted to see fewer betting shops on their high street. It has since launched a betting commission that works with the industry to address clustering and gaming machine concerns. The LGA, along with numerous councils, including Newham, has called for greater planning licensing powers to deal with problems associated with betting shop clustering. I refer to Newham because numerous reports, including one last year by the BBC, have highlighted the staggeringly high number of betting shops in the area, including a single street that contains 18. According to the BBC, that is more than in any other part of the country.

The Opposition share those concerns, although we appreciate that not all areas are similarly affected. That is why we believe that local authorities showed be empowered to take action in response to local concerns about betting shops and the proliferation of FOBTs. We believe that betting shops should be put into a separate use class so that councils can use their planning powers to control the number of betting shops that open in their area, and indeed that local authorities could be granted the power to restrict the number of FOBTs that are allowed per betting shop from the current maximum of four. Of course, several concerns have also been raised about the link between FOBTs, or high-stake gaming machines, and problem gambling.

B2 machines—type 3 machines, as they will now be known—are high-speed games with only 20 seconds between games, as my hon. Friend the Member for Wythenshawe and Sale East rightly pointed out at the beginning of my comments. There are 20 seconds between games, with no required break in play. Critics have argued that that is what makes those machines addictive, leading to concerns that the immersive nature of those games lulls people into spending more than they might have intended.

The Opposition recognise that features of such games can be immersive and pull some players into “the zone”, as researchers have termed it, where they may spend much more than they intended to. That is why we believe action should be taken to minimise potential harm from FOBTs through, for example: increasing the time between play; introducing warning pop-ups on the machines; and requiring more breaks in between plays that allow players to pause and take stock.

However, we also acknowledge that we are still missing—in response to the hon. Member for Redcar—the necessary information, data and evidence to inform the debate and to understand properly the links between FOBTs and problem gambling. In addition to the increase in machine games duty, the Minister responsible for sport, tourism and equalities, the Under-Secretary of State for Culture, Media and Sport, the hon. Member for Maidstone and The Weald (Mrs Grant), recently informed the House that the Government would

“adopt a precautionary approach and take targeted and proportionate action to protect players further when using high-stake gaming machines on the high street.”—[Official Report, 30 April 2014; Vol. 579, c. 54WS.]

As a consequence, the Minister announced that the Government would make two regulatory changes. The first relates to betting shops on the high street and  makes changes to which the Opposition committed last autumn. Betting shops will be put in a smaller planning use class, so that when a bank, building society or estate agent is proposed to be converted, a planning application is now—and should be—required to convert it.

On the regulation of FOBTs, however, the Minister announced that the Government will enforce supervised cash staking above £50. In other words, players will have to interact with a member of staff before they stake anything over £50. The Minister’s written statement conceded that the Government are taking a precautionary approach. Presumably, that means the Government are still not fully aware of the facts or the evidence to make an informed decision on regulating FOBTs, so I would be interested to hear this Minister set out the evidence base behind the Government’s decision to introduce supervised cash staking on stakes over £50. Why did the Government settle on £50? What evidence is there to support that figure? The Gambling Commission recently found that an extremely small proportion of stakes on FOBTs—7% of them—are above £50, so what impact do the Government believe the measure will have?

The recent Government announcement has shown that the debate still fails to be informed by comprehensive, independent data, so the Government are just taking precautionary steps when a well informed approach would have much longer-term value. That is why we have said we will require operators to provide data in a consistent, standardised format and procedure, so that researchers can fully analyse the impact of those machines on players. That is the best way to ensure that we have informed decision making on a hugely important and deeply concerning issue in the future.

The Government still need to answer a number of questions about their approach to betting shops on the high street and on the regulation of FOBTs. They are increasing the duty on such machines to 25%, for the stated purpose of levelling the tax playing field, but it remains unclear whether that measure is, in fact, part of the Government’s approach to addressing those issues, or is just a revenue raiser. Perhaps the Minister could clarify that point.

Amendment 52 would hold the Government to account on their approach to those issues, asking them to set out exactly the impact of the measures contained in the clause. We believe that we need more harm-minimisation measures for high-stake machines, as well as enabling local people to have a greater say over new betting shops opening up. Above all, we need an informed debate on the subject—the necessary information just is not there at present. The amendment would help inform the debate, and it would help the Government to understand better the impact of their precautionary approach to FOBTs. That is why I urge all members of the Committee to support our amendment.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I wish to make some brief remarks, partly in support of the hon. Lady in regard to the technology involved in these machines. I believe the intention behind the Bill is to place a higher tax rate on B2 games, the high-stakes games. As she rightly pointed out, the terminals typically have other games, particularly B3 games, with a maximum stake of £2 on the same machine. The industry is understandably concerned at these lower-stakes games being potentially taken into the same tax net. They themselves, and I have met the Association of  British Bookmakers, know that there is no political mileage in challenging the higher rate on B2 machines; they accept that will happen. However, they—I think we can understand why—do not think it is appropriate to have the higher rate on the B3 part of the games. If we are talking about problem gambling, they also point out that having lower tax rates on lower-stakes games is obviously part of the incentive process to make people trade down.

I am not a cipher for the Association of British Bookmakers, but it is important to ensure that these points are made. It has proposed changing only one word in the Bill—“machines” to “games”. It understands the higher rate for stakes of over £5, but not for lower stakes. Even on the B2 machines, it suggests that if someone plays a B2 machine for only £1 or £2, it could be argued that that should not be subject to the higher taxes—again, partly as an incentive to use lower stakes. The feedback it has had so far, I think from HMRC, is that this is all too difficult and that it can tax only by machine. Now that the bingo tax has changed, the electronic bingo terminals that I am familiar with also have B3 games on them. HMRC has already agreed that it could tax the bingo games at 10% and the B3 slot machine-style games at 20% on the same hand-held terminal.

There is no real technological argument against splitting the games. I do not know whether it is just a drafting point or a genuine attempt to tax the whole machine at 25%, but I would appreciate the Minister’s clarification.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I echo the sentiments of my hon. Friend the Member for Newcastle upon Tyne North and the hon. Member for Redcar. There is clearly a worrying anomaly here. This all needs to be set in a context in which we all, without exception, promote responsible gambling and eradicate the dangers of people falling foul of a gambling addiction. For those who suffer from a gambling addiction, it can be a life-ruining experience not just for the individual but for their family. We are living in a very changed world. People can use their money as they see fit in betting shops on our high streets, but there is also a whole range of online gaming and gambling opportunities in competition with those betting shops, which can quite easily siphon money out of people’s bank accounts.

I occasionally use a betting shop, but not very often. In fact, the last time was for a free bet given to me by Ladbrokes and I will declare an interest. I bet on Gateshead to beat Cambridge United and Gateshead came up trumps and beat them. The mayor of Gateshead’s charity benefited by £112.50, so it was a worthwhile exercise. The industry, however, could do much more to alleviate the problem of gambling addiction. I spoke to the Association of British Bookmakers about the different organisations in the industry sharing information in a particular locality. If an individual goes into a betting shop to self-exclude because they have a problem, they self-exclude from that individual shop under the umbrella of that company, but they can walk into a betting shop 30 yards away and carry on with their addiction. We need to do much more to share that information across the industry so that self-exclusion can be a remedy.

Photo of Mary Glindon Mary Glindon Labour, North Tyneside 6:15, 10 June 2014

My hon. Friend may recall my example—one of my constituents was self-excluded but he went into a betting shop and presented his partner’s credit card to use, no questions asked. Does my hon. Friend agree that that shows the importance of his point?

Photo of Ian Mearns Ian Mearns Labour, Gateshead

It is all too clear. Being an MP and being interested in the activities of all my constituents, I have visited betting shops in conjunction with the industry. In fact, an important part of Ladbrokes’s national operation—its national audit centre—is in my constituency. Every Ladbrokes betting shop is audited and overseen from an operation in Gateshead town centre; it is an important employer in my constituency. The industry now accepts that it needs to do more to save people from gambling addiction.

Despite the plethora of betting shops on our high streets, there are probably fewer than there were 30 years ago, but they were much better distributed back then—there were more on estates, next to large pubs and social clubs. Now, they are concentrated in high streets and there seem to be more.

We need to ensure that, as part of the Bill, we do not create unintended consequences. We do not want to drive people away from low-stakes games of £2 towards £5 minimum bets on high-stakes games. It would be totally inappropriate for us to pass legislation of that nature. Although I do not think that Government Members will accept our amendment, they need to think about and try to safeguard against that during the Bill’s passage. We do not want to drive low-stakes punters into higher-stakes betting and gambling games. That would be a major mistake.

From the perspective of the betting shop industry, there is a danger of taxing gaming machines in one set of establishments at a different rate from those in other establishments, for example, in bingo halls. Let us have some fairness across the different elements of the industry and try to work together in a much more rounded way to attempt to alleviate those worrying situations.

Photo of Mike Kane Mike Kane Labour, Wythenshawe and Sale East

It is a pleasure to serve under your chairmanship, Mr Streeter. I agree with my hon. Friends the Members for Gateshead and for Newcastle upon Tyne North that we need an informed debate on the issue, regardless of who is going to be governing the country next year. The regulatory and taxation environment governing the industry will have to change over the next few years. On the Opposition side, the relaxation of some of the legislation in 2007-08 was not good. We were promised a super-casino in Manchester, which was undermined, and we were promised regional casinos. In many senses, a lot of us wanted casinos because they are well-regulated environments with high standards of management. We have been left with high streets cluttered with gaming shops, where there is very little regulation as it is.

Landman Economics found that FOBTs are massively labour unintensive and, for every £1 billion spent on them, it believes that 22,000 jobs are lost to the wider economy. My hon. Friend the Member for Gateshead said that the industry could do more to help problem gamblers and those with gambling addiction. At the moment, only 0.1% of the industry’s £5 billion profit goes towards treating people with gambling problems.

The Campaign for Fairer Gambling commissioned Geofutures, which found that £13 billion was being sucked out of the 55 most deprived boroughs of England. When a proliferation of payday loan lenders’ shops in our poorest boroughs is layered on top of that, it can be seen that those industries are targeting some of the most vulnerable in our society. I go back to the point I made at the beginning: no matter who is in government over the next 12 months or the next four or five years, we will have to begin to tackle this industry and this problem.

Photo of Iain McKenzie Iain McKenzie Labour, Inverclyde

It is a pleasure to serve under your chairmanship, Mr Streeter. Naturally, I support our amendment. It is sensible that we start measuring, to get a handle somehow on the extent of the problem with the machines in our communities and high streets. We have asked for five points to be reviewed, but I shall concentrate on just two. First, on the number and prevalence of these betting machines on our high streets, in my high street I am seeing ever more shops springing up with those machines and they are moving out of the high street into the communities that can least afford them.

People in those communities are being encouraged to spend continuously on those machines, as we heard. The speed at which money can be put into the machines is quite frightening. There has been an increase in the number of loans from sources that we would not like people to look for loans from: such loans enable people to play the machines.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I neglected to say earlier that I have heard senior managers from the industry say among themselves that it was worth their while opening an additional shop on a high street to get four fixed odds betting terminals in that location and receive the proceeds from those machines. That is how important they are to the industry.

Photo of Iain McKenzie Iain McKenzie Labour, Inverclyde

I thank my hon. Friend for his intervention.

Secondly, the machines are having a big impact on credit unions in the communities. Some credit unions are now having to say no to people, because they know exactly where they are going with the money that they are getting from the credit unions.

Moving on, across the border, let us consider giving local government the power to say no to such outlets setting up on the high street and so on. I am particularly glad that my Labour-led council has now refused to rent shops to these gambling outlets. However, needless to say they still cannot stop them getting on to the high street and into the suburbs and communities.

Will the Minister accept this amendment, although he has said no to previous amendments? We have had the beer and the bingo and we do not need the bandits.

Photo of David Gauke David Gauke The Exchequer Secretary

The clause makes changes to ensure that one of the most profitable forms of high street gambling—gambling on B2 gaming machines—continues to contribute a fair share of tax revenues. Category B2 machines, or fixed odds betting terminals—FOBTs, as they are also known—allow people to stake up to £100 and win up to  £500 per spin. Gambling Commission data suggest that there are now some 33,000 such machines in Great Britain, with the majority located in high street betting shops.

Since the introduction in 2007 of the Gambling Act 2005, betting shops have been permitted to have up to four B2 machines, with the majority taking up their full allocation. Such machines are highly profitable; on average, each machine makes a weekly gross profit of almost £900, which is just over £46,000 a year. Collectively, the machines make annual gross profits of nearly £1.6 billion.

The changes made by clause 117 will ensure that these extremely profitable machines continue to make a fair contribution to UK tax revenues. The rate of machine games duty on the machines’ gross profits will increase from 20% to 25% from March next year, which is expected to generate initial Exchequer revenues of £335 million in total over the scorecard period. This increase in the rate of duty reflects the profitability of B2 machines and the progressivity of the machine games duty regime. Most machines are subject to the standard 20% rate of machine games duty. However, machine games duty already reflects different levels of machine profitability. There is a lower rate of 5% for machines with low stake and prize levels, which tend to generate low profits. The introduction of the new higher rate will ensure that the machine games duty regime extends that progressive approach to the high end as well as the low end. Hon. Members will be aware that the Government have also taken regulatory action on category B2 gaming machines for consumer protection reasons. The tax change is focused on profit.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Will the Minister explain whether he thinks the change will have a behavioural change impact, or is it simply seen as a revenue-raising measure? If it is a revenue-raising measure, will that make it less likely that the Government will regulate and reduce the prevalence of these machines?

Photo of David Gauke David Gauke The Exchequer Secretary

As I said, the tax change is focused on profit. Regulation is the responsibility of the Department for Culture, Media and Sport. We believe that the changes will improve the fairness of the tax system, and DCMS will reach its own conclusions about consumer protection as part of this process.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

It is strange that the Minister is saying that Treasury policy bears no resemblance to what the Department for Culture, Media and Sport thinks needs to be done to deal with the social issues. Is the Minister saying that the Treasury is looking at this issue purely from a tax perspective and that it does not liaise with the Department for Culture, Media and Sport on its efforts to deal with issues relating to local planning, local communities and health?

Photo of David Gauke David Gauke The Exchequer Secretary

There are a number of aspects of Government policy in respect of B2 machines. Of course, DCMS, the Treasury and other parts of Government will liaise and co-ordinate to determine Government policy as a whole on this matter. The hon. Lady asked what the focus of the measure is. It is to ensure that the tax system is fair and that it contains a degree of progressivity. At the moment we distinguish low-profit machines, which have smaller stakes and prizes, but we  wish to bring in a distinction between the machines that include B3s, but no higher, and those that include B2s. That is the purpose of the policy.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

The Minister might have just answered my question, but can I clarify that his intention is to tax B3 games machines that also have B2 games at the higher rate of 25%? Was that his intention in drafting the legislation?

Photo of David Gauke David Gauke The Exchequer Secretary 6:30, 10 June 2014

I was going to come to that point in a moment. Let me be clear about it. It is well understood that gaming machines can have a dual content. The current structure on machine games duty recognises that, provided there is mixed content, the higher of the rates will apply to the machine in question. This is the same approach that is used already for machines that have content that straddles the boundary for the lower rate and the standard rate. It is also worth pointing out that the new 25% rate of MGD will apply only to machines that offer the high-stake games with stakes over £5. It is possible for a bookmaker, if they choose, to remove their existing B2 machines from their properties and replace them with lower-stake machines such as B3 machines, which will continue to be subject to the 20% rate. So it is not an anomaly; it is consistent with our machine game duty that currently exists.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I thank the Minister for that clarification. Will he confirm to the bingo industry that he is not opening up a new anomaly, so that, if bingo is played on an electronic terminal that also allows B3 games to be played, he will not be taxing bingo at 20% should it be played on such a terminal?

Photo of David Gauke David Gauke The Exchequer Secretary

Let me come back to my hon. Friend about bingo and deal first with the other questions raised in the debate. As I have said, this tax change is focused on profit. Obviously, the change will affect the industry. It has lobbied hard on this matter, but the decision was not taken lightly. We have had to balance carefully any potential impact on the industry against the fairness and progressivity of the tax system as a whole.

Amendment 52 would compel the Government to publish a review on the impact of the new higher rate of machine games duty on the profitability, prevalence, usage and association with problem gambling on these machines in addition to the number and prevalence of betting shops on the high street. The Government carefully consider gambling tax rates and the potential impact on affected industries each year in the Budget, and will continue to do so to ensure that gambling businesses continue to make a fair contribution to the public finances. To that extent, the provision is unnecessary as the Treasury keeps taxes under review at all times.

Furthermore, I would like to remind the Committee that the new higher rate of machine games duty introduced under this clause does not come into effect until 1 March 2015. Consequently, a measure asking for us to respond at an earlier date would not be based on the experience of this measure coming into effect.

Returning to the question asked by my hon. Friend the Member for Redcar, bingo is charged with bingo duty and games content is charged with MGD, so I  hope I can reassure him that there are separate regimes and they are charged differently, so his concern will not apply.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

The Minister is arguing against himself. He says that a single machine that has high-odds games and low-stake games mixed will all be taxed at the higher rate, and the answer is to get rid of the machine and put in a low stake machine. From a revenue perspective, that will automatically massively reduce the revenue that it is said that the system will generate, not only because the low-stakes games will still be taxed at 20%, but because the turnover on low-stakes games means that the £900 profit a week that was mentioned in the earlier part of his speech will not be achieved. The Minister is arguing against himself. The technology exists within the machines, through the betting companies’ accounting systems, to distinguish between the different amounts.

Photo of David Gauke David Gauke The Exchequer Secretary

I do not agree with the hon. Gentleman. The point is that if a bookmaker wants to offer a machine that provides B3 games only, it will be taxed as a B3 machine at 20%, which is the current practice. If the machine also offers B2 games, it will be taxed at the higher rate. That is already in place with the MGD. Where a machine has dual content, it straddles two different types of game. It is therefore consistent with how the system works currently. If the hon. Gentleman’s concern is that bookmakers will be discouraged from providing B2 machines, fair enough, but one got the impression from his remarks and those of his colleagues that they would welcome that. The important point, however, is that the proposal is based on machines and it is applied consistently within the MGD.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

My hon. Friend the Member for Gateshead raised an important point. The Minister’s reply indicates that the Government do not actually know what the impact of the change in tax rates will be. It could be that more B3 games are offered or it may be that machines are changed to offer lower-stakes games only in order to ensure that they are not taxed at the higher rate unnecessarily. The difficulty that I and other hon. Members have is that the Government do not seem to know what the impact of the changes will be, both on Treasury projections and social factors.

Photo of David Gauke David Gauke The Exchequer Secretary

As with all tax measures, certain assumptions are made about the revenue that will be raised as a consequence and that should come as no particular surprise. In response to the point from the hon. Member for Gateshead that I was trying to address, the way that the MGD currently works is consistent and the proposal does not change the way that that system works. The evidence from bookmakers suggests that they will probably not change their machines, which will continue to be dual content, but we will see. The scoring and the assessment that was made here, as with all measures, was signed off by the Office for Budget Responsibility and was made on the best evidence that we have about the behavioural impact. The change is the right one to  ensure a fair approach and that our tax system has progressivity. The more profitable machines should pay a higher rate of tax.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

The Minister said that assumptions are made and that projections are based on those assumptions. It might be helpful to the Committee, as I appreciate that he may not have the information to hand, for him to write to the Committee to confirm what assumptions have been made in relation to today’s questions about the Treasury’s projections. Alternatively, the Government could support our amendment, which seeks to examine exactly such issues and to document the process properly so that we can learn lessons for the future.

Photo of David Gauke David Gauke The Exchequer Secretary

Even if we accepted amendment 52, it would not give us the answer that the hon. Lady is seeking to find. The change in tax will occur after a report is supposed to have been provided to the Committee, so I cannot see how amendment 52 helps us here. I am happy to provide more information and I will write to her about the assumptions used. However, I would make the point that in any change to the tax system where there is an assessment for additional revenue, assumptions have to be made in good faith on the basis of the evidence. The assumptions are verified and scrutinised by the Office for Budget Responsibility and this case is no exception.

I believe that the clause will ensure that there is a fair and progressive tax system and a report in these circumstances would add nothing to our knowledge. I ask the hon. Member for Newcastle upon Tyne North to withdraw the amendment and I hope that the clause can stand part of the Bill.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury)

I thank the Minister for his thorough response to the questions raised and for taking so many interventions. Opposition Members still believe that there needs to be a more informed basis for these decisions and that that data need to be available in the public sphere. We will press our amendment to a vote.

Question put, That the amendment be made.

The Committee divided: Ayes 10, Noes 13.

Division number 12 Decision Time — Clause 117 - Rates of machine games duty

Aye: 10 MPs

No: 13 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Clause 117 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Amber Rudd.)

Adjourned till Thursday 12 June at Two o’clock.

Written evidence reported to the House

FB 01 Gibraltar Betting and Gaming Association

FB 02 Mr Raoul Strachan