Scottish Football (Tax Liabilities)

Damian Collins Excerpts

Wednesday 29th February 2012 Westminster Hall

[Damian Collins (Folkestone and Hythe) (Con)]

I just want to make a few comments on this important subject. I will not claim to share other hon. Members’ expertise in Scottish football. No doubt, other hon. Members, particularly from Scotland, will speak with a great deal of insight about the situation at Glasgow Rangers football club. However, I think that the hon. Member for Dunfermline and West Fife (Thomas Docherty), in opening the debate, touched on a number of important points that are relevant to football in Scotland and in England and relate to the financial administration of the game—in particular, the football first creditors rule.

There is no doubt that, in the case of Rangers, the losers are the fans of the club and other clubs and businesses to which it owes money. They are the people who have lost out as a result of what has happened. The failure of a club of its size has an impact in destabilising the structure of the league, so in some ways everyone involved in football in Scotland is affected, whether or not they are directly employed by or associated with Rangers football club. The hon. Gentleman set that out very clearly.

I think that there is a big issue to do with the football creditors rule. The caution that I would express about it in relation to Scotland is that it has had a damaging and destabilising effect on the game in England. It cannot be right that when a club fails and goes into administration, its creditors, if they are not within football, might get a penny in the pound. We might be talking about a local business that prints the club’s programmes or a local builder who had worked on its ground. When Leeds United went into administration, the West Yorkshire ambulance service got pennies in the pound or a penny in the pound. However, footballers who are owed salaries and football clubs in different parts of the country that are owed transfer money get their money in full.

The hon. Gentleman made a very good point about ticket sales—money that is supposed to pass directly from one club to the other. He highlighted that particularly well. It is unfair to other creditors of football clubs—community businesses working alongside a club, perhaps employing fans of that club—that they lose out massively.

It would be a good thing for football if clubs had to take a stronger interest in each other’s financial performance when they entered into financial transactions with each other. A club would really have to think, when it sold a player to another football club, “Can this club afford to pay us?” At the moment, clubs know that that risk is guaranteed by the football first creditors rule, so they are more likely to sell players to clubs that cannot really afford them.

The type of discipline that I have described would be good. It might help to bring about something that is badly needed in football in England and Scotland—some deflationary pressure on players’ salaries and transfer fees. That is where the money is going. There has never been more money in football than there is today, yet there have never been so many football clubs failing financially.

[Thomas Docherty]

The hon. Gentleman has been a big champion of football reform. Does he not accept, though, that the sums of money in Scotland are very different from those in England? The reality is that two clubs in Scotland hold 90% of the revenue and, in effect, bully the other clubs in Scotland.

[Damian Collins]

The hon. Gentleman makes a very important point. The failure of Rangers in Scotland has a much bigger market-distorting impact on Scottish football than the failure of Leeds United, Portsmouth or another large club in the English premier league would have, so it is a much more acute problem. That is an area where greater transparency on financial performance and disclosure between clubs would help. However, that is not something that the clubs should be allowed to do on their own. They require help from the governing bodies and, where necessary, from HMRC as well, so that that can be properly policed. I agree that it would be very difficult for smaller clubs in Scottish football to start calling the shots with the old firm. That is a problem, but it is one where the competitions have a role to play.

Where clubs owe money to the taxman, that is a serious matter, as it is for any other business. The hon. Gentleman made that clear in his speech. Businesses in our constituencies—we have all had such experiences in the past year or two—have problems because they are in arrears; HMRC is coming after them for the money; and they ask for help. It is a very difficult situation to be in. Businesses understand that if they owe money to the taxman, it is a serious issue, so how is it that football clubs have been allowed to build up large debts?

When Leeds United went into administration, the taxpayers of the United Kingdom lost £6 million in unpaid taxes. Why was it allowed to get to that stage and to get that bad? HMRC should intervene, but the competition organisers should be keeping an eye on the tax payments and how up to date they are for their clubs. The premier league in England has made some progress with that. It even has a system where clubs can have television money or prize money withheld from them if they owe money to the taxman. That money might go straight to the taxman. The clubs have to understand that they have to pay their bills just like any other business.

It is unfair for the clubs to subsidise spending that they cannot afford by securitising their ticket sales, selling their future gate receipts, borrowing money from their banks until they cannot borrow any more, borrowing money from the local businesses that they engage with and owe money to and borrowing money from the taxman. They cannot keep on borrowing money at every opportunity until there is none left. That has to be stopped, and the tax authorities have a big role in doing so, with the support of the competition organisers. That is one of the reasons why the Culture, Media and Sport Committee, of which I am a member, has recommended that there should be a licensing scheme for football, so that the football authorities can keep an eye on the financial performance of clubs and ensure that they are not getting into too much debt.

There is also the introduction by UEFA of the financial fair play rules. In Scotland, just as in England, there will be many clubs playing in the top division that will have a chance of qualifying for European competitions—certainly the Europa league, if not the champions league—that will want that licence. They will understand that they have to be able to balance their books in the medium term. That will be an incentive to clubs to ensure that their financial performance is better in the long run. We should be putting our own house in order, however, and the competition organisers have a big role to play in ensuring that that happens.

There is a great role for HMRC in ensuring that tax liabilities are paid. There is a role in getting rid of the football first creditors rule.

[Thomas Docherty]

The hon. Gentleman is making a compelling argument, but perhaps I could tempt him to say something about clarity of ownership as well. Part of the issue with Leeds United in particular was the uncertainty over who owned which assets. Will he speak about that?

[Damian Collins]

The hon. Gentleman pre-empts the final thing that I wanted to touch on in my remarks and the subject of my ten-minute rule Bill, which I will introduce on 13 March and which is about the ownership of clubs and assets. It is an important area and one where HMRC could be prevailed upon to help. When Leeds United failed, there was uncertainty over who took over the club’s liabilities. It was taken over by a beneficial trust and the investors in that trust were never made known. There were allegations of a relationship perhaps between FSF, which took over control of the club, and some of the club’s other creditors. That was never known, because we never knew the identity of those investors. It would help football a lot if there was transparency over the ownership of clubs and clubs’ major assets, such as training grounds and stadiums, so that we can see who controls them and where the money comes from.

There have been allegations that certain people who represent the brass plaque of the ownership of the club are not the source of finance for the real ownership of the club. I do not understand how the fit and proper person test can be applied to a club’s ownership if no one knows who that person is in the first place. We do not know who owns Coventry City, who currently play in the second tier of English football. Until last summer, we did not know who the owners of Leeds United were either. That cannot be allowed to continue. Certainly, if clubs are failing and the taxman is losing millions of pounds in revenue, businesses and local communities are losing money because the clubs owe them money and the obscurity of the clubs’ ownership causes further concern and a lack of confidence, that needs to be resolved.

The ultimate way to resolve who owns football clubs—again, HMRC may be able to help us on this—is to understand the source of the finance. People might assume ownership or the ownership might be from a fund that is registered in Nevis and operated in Switzerland. Where does the money come from? HMRC has to look at that routinely. HMRC and football clubs’ banks have to be satisfied that football clubs are not being bought or injected with cash that may have come from uncertain or dubious sources, so that needs to be followed.

I feel that HMRC should launch a retrospective investigation to determine what the source of finance was for Leeds United and who owned the club, so that if there was any uncertainty about the club’s ownership and who was involved in putting in money to take it out of administration, that might be pursued. We have a right to know what happened in that case and the tax authorities may be the only body that can pursue that.

Poor administration of football clubs creates a big debt to society, which communities around the country are paying. We should send a lesson out that we want greater transparency over ownership and greater transparency of finances between clubs and a more responsible attitude from clubs in their transactions with each other, to avoid the big impact that we feel at the time and that we see with Rangers currently of the cost of failure. That is the cost to fans, local businesses and the competitions in which they compete.

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[Pete Wishart]

I am glad the hon. Gentleman mentioned that. He is absolutely right that that is one possible consequence of losing Rangers. That is why we should do all we can to ensure the ongoing survival of Glasgow Rangers football club.

[Damian Collins]

Glasgow Rangers is too big to fail, and they will find a way of restructuring their debts and coming back, but does the hon. Gentleman share my concern that the real long-term losers will be small businesses and other football clubs?

[Pete Wishart]

The hon. Gentleman is spot on. There is, of course, talk and speculation about what happens if Rangers are unable to come out of administration. Indeed, the Scottish press, particularly the sporting press, have a fascination with the old firm, and we read about it almost every day. However, the hon. Gentleman is right that some of the small businesses that are expecting payment from the administrators will suffer a massive loss. That is a real issue, and I am grateful to him for bringing it up.

Football is our national game. All our football clubs play an enormous part in our economic activity and make a real contribution to our communities and constituencies. The Fraser of Allander Institute estimates that the old firm’s economic importance to Glasgow and the rest of the Scottish economy amounts to £190 million. More than 3,000 full-time jobs depend on SPL football, and £200 million is spent on related commercial activities in Glasgow alone. According to the Rangers annual report, the direct economic activity generated by the club is in the region of £56 million.

Most importantly, there is also the issue of what happens to the 331 people directly employed by Rangers. They must be absolutely paramount in our considerations, and I hope some solution is found so that they can continue to serve in their jobs.

This is not, however, just about clubs’ contribution to our economy, important and significant though it is. There is also the value professional clubs have for our communities, and the hon. Member for Dunfermline and West Fife mentioned that. We can all see the infrastructure that exists and the clubs our young people are encouraged to participate in. We know that our football clubs make an immense contribution to our communities. According to the SPL’s 2011 community report, 20,000 people participate in community projects weekly, and SPL clubs spent £8 million on community activity, which is no small sum.

There are also the fans in Scotland. I know the audience for SPL football has diminished, but 3.2 million people still attend SPL games each season, and a further 76 million watch them on ESPN, the BBC or Sky. Football is therefore a big business, which contributes much to our economy and our communities, and we must ensure that we respond to the current crisis with the sensitivity it deserves and requires. Scottish football is in a precarious state, and it remains a fragile product, so it can ill afford to lose one of its major protagonists.

Of course, this is not just about Rangers. Several of our clubs are teetering on the brink of financial collapse and ruin. I just wish they could all be like St Johnstone, which is run so perfectly and effectively by Geoff Brown, its chair. It never gets into debt, it always ensures it looks after its liabilities and it never has a problem with HMRC, but that is not the case with many of the clubs in the SPL. I am thinking not just about Rangers, but I will not mention the other clubs, because we all know which ones are experiencing real difficulties and pressures.

We have seen what happens when clubs cannot meet their responsibilities and liabilities. Dundee and Livingston went into administration. We have also seen one SPL club—Gretna—go to the wall in the past 10 years. It was not a particularly great example, and I doubt whether other clubs would like to replicate its business model.

These are tough times, and gates are falling. We have heard from the hon. Member for Folkestone and Hythe (Damian Collins) about the pressure of football wage inflation and how it must be brought under control. The hon. Member for Dunfermline and West Fife was of course right to mention that SPL football is totally different from the English premier league or first division, and only the wages in the old firm are similar. However, some clubs have tried to replicate what we have seen elsewhere and to buy success by buying expensive players. They have tried to compete with the old firm and they have got into all sorts of difficulties. That is probably one of the reasons why Dundee football club, in particular, experienced the difficulties that led to its going into administration. There is a demand all the time to buy more expensive players, because that is what the market dictates, and clubs are encouraged to fork out money. However, gates are falling, and there is any amount of competition from other activities for the time of constituents, who might otherwise go to watch football games.

We all accept that our football clubs must meet their financial obligations. Everybody in every business must pay their tax—it is as simple as that. They must pay it on time and they must ensure that any business plan is totally predicated on meeting their tax liabilities. However, I am sure I am not the only Member in the Chamber who will have put the case for businesses and individuals in his constituency who have got into trouble over their tax liabilities. I do not know how many letters I have sent to HMRC on behalf of small businesses and people who have got themselves into difficulties. It is absolutely right that people also make representations on behalf of Glasgow Rangers because of its significance to Scottish football and the number of jobs that depend on it, as well as its history and tradition, its success and its value to the SPL.

The club is in a mess. The hon. Gentleman mentioned the current regime, which has been a total disaster—we cannot call it anything other than that. Once Craig Whyte took over its debts, something was always going to happen. He did not have the money to ensure the club could get out of its difficulties. What he did with Ticketus was appalling, and there will now be an SFA investigation into the Ticketus deal. There will also be an investigation to see whether Craig Whyte is a fit and proper person to run a football club, and we will have to see the details. Again, it is the fans who suffer, and the people who work in the club have been the major recipients of all the bad news and all the doom and the gloom.

Right now, the administrator is responsible for running the club. In the next few days, Duff and Phelps expect to announce the first round of job losses, which will first impact on the playing staff. There are outstanding issues of payments to other clubs, and I have heard the representations from Dunfermline football club that it should be paid. The hon. Member for Dunfermline and West Fife is right that money should be paid to clubs that are owed it, and Rangers have no right whatever to retain it. However, the job losses show the real impact that going into administration has on people’s careers and jobs.

The hon. Gentleman talked about the Scottish Government’s role, and they stand ready to offer assistance to anyone affected by job losses. They have said they will do all they can to keep in contact with the administrator and to be available to provide support and assistance if there are job losses. In addition, there is the PACE—partnership action for continuing employment—programme in Glasgow, which has offered to provide any assistance it can if there are job losses. PACE has offered Duff and Phelps assistance almost daily to take things forward, and there have been several conversations to that effect. This is a developing and emerging situation, and Scottish Ministers and PACE are keeping their eye on it.

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[Owen Smith (Pontypridd) (Lab)]

I congratulate my hon. Friend the Member for Dunfermline and West Fife (Thomas Docherty) on securing an important debate, which has touched on a much wider set of issues than just Scottish football. It covered the importance of football, and football and sporting clubs, as cultural institutions within communities—institutions that help bind communities together. I thought that my hon. Friend’s remarks about Dunfermline, and in particular Cowdenbeath, were deeply informative. I confess I was not aware that Cowdenbeath were known as the Blue Brazil. I assume that that is to do with the shirts, and not the temperature in which they play north of the border; but it could be either, I guess.

Two broad sets of remarks have been made in the debate, and I want to frame mine against that context. I have already mentioned one of the areas covered: the importance of football clubs as cultural and community institutions that are integral parts of communities—aspects of communities that inspire pride, loyalty, aspiration and ambition in individuals, but which also act as standard bearers for those communities in the wider world. I do not think that anyone could deny that Rangers, Celtic—their great rival—and all the great clubs of Scotland have been standard bearers for Scotland in the world of sport and beyond.

Rangers, of course, are a great Scottish club, and the one that prompted today’s debate. We heard a bit of their 140-year history, and about the nine great championships that they won on the trot in Scotland, equalling, I believe, the Celtic record. I was not aware, until I started looking at this subject, that they are also the club that has won more national championships than any club in any national football league in the world. That is a measure of the club’s success. However, what we cannot understand by looking at the names inscribed on trophies and trophy walls in such clubs is the wider, deeper, historical, cultural and sporting significance of the club. Anyone who has been to Ibrox, as I have, as a great sports fan—though a Welshman, of course—knows the importance that the community attaches to it. It is right that we should be discussing the issue today, and framing our remarks in that context.

The other broad set of remarks on the sporting front was about the role of money in sport, and football in particular, as well as about ownership, the transparency of football club financing, and the sustainability of clubs in a world where money seems to be the prime driver, despite all those other—in many respects far more important— cultural, historical and community values associated with the role of the club. That is something that I, as a Welshman and a sports fan, feel is significant for a different code of football—rugby football. We have similar issues with the game in Wales. I agree with the hon. Member for Folkestone and Hythe (Damian Collins), who made some remarks about the necessity for greater transparency about finances. He also said some things, to which I hope the Minister will pay attention, about the role of HMRC and the Government in seeking greater transparency in finances, ownership structure and the potential pitfalls and difficulties that clubs may encounter, in rugby and of course football. Clubs are businesses, yes; but they are more than just businesses.

However, in that context of clubs as businesses the role of HMRC is simple. Its job is to collect the taxes that are due in the appropriate volume and at the appropriate time. It is not often that I or other hon. Members quote judges; perhaps judges would feel that we do not do so approvingly. However, Lord Justice Mummery, in a recent tax case at the Court of Appeal, said rather appositely that

“tax is a contribution towards the costs of providing community and other benefits for the purposes of life in a civil society”.

That is a phrase that would have fallen, perhaps not as eloquently, but certainly as easily, from my lips. Tax is important to the wider community just as those football clubs are.

It is in those two contexts that I place my remarks. Individuals and businesses, however humble or, in the case of Rangers, mighty they are, need to pay their taxes. Therefore it is a matter of great regret to me that Rangers have not paid the £9 million in taxes that HMRC has said is outstanding for PAYE and VAT. That is why Rangers have gone into administration, which we deeply regret. As I understand things, HMRC is also looking at whether there may have been instances of tax avoidance. I am sure that the Minister will take great care over that, given his and my deep and continuing concern about tax avoidance. I know, in particular, that HMRC is interested, in the Rangers context, in the use of employee benefit trusts. There are several investigations in progress about EBTs, and, as I understand the matter, their use for payment of individuals working for Rangers, including players, plays a part in the non-transparency of the financial affairs. I will not go into further detail because I cannot: we do not have the detail that would make further comment possible. However, I should like assurances that the Minister is making himself certain that he understands, to the extent that he can, given the arm’s length nature of HMRC, the detail and complexity of the issues involved. I also ask him to consider the wider cultural set of understandings and sensitivities that HMRC needs to bring to bear in this case.

One of the other issues that has clearly come out of this debate is the importance of local knowledge and local understanding—the rootedness of Rangers in the local community. Under the current Government, in particular, and under the last Government, there has been a reduction in numbers of local HMRC staff. That reduction is being sped up under the current Government, with 10,000 more HMRC staff due to go before the end of the spending period; it was announced in January that 4,000 or so staff would go. Given that reduction and the potential loss of local knowledge, is the Minister certain that those people in HMRC who are dealing with Rangers in Scotland will understand the cultural context and have the requisite sensitivity to appreciate both the financial nexus locally—the interconnectedness of clubs and businesses that surround Rangers, and of course the connection between Rangers and the wider Scottish professional football league, which, as we have heard from hon. Members, is a crucial connection—and the cultural significance of Rangers for the local community?

Given the Minister’s slightly arm’s-length relationship with Revenue and Customs, has he been briefed in detail about Rangers, to the extent that he can be briefed about the issue? Does he feel that he is fully on top of the issue? Does he understand—I am sure he must—the importance of Rangers to the wider community and the wider sporting fraternity in Scotland? Is he certain that the HMRC people dealing with Rangers have the requisite expertise?

In closing, I will say a few things about the issue that I think is at the root of many of the problems that we have in football; there may be particularities around Rangers connected with the takeover of the club by Craig Whyte and the way that the club’s business has been managed since May 2011, but Rangers are not a unique case. The root cause of the problems that football clubs, rugby clubs and other sporting institutions across the length and breadth of this land are facing is to do with the role of money and the commercialisation—the commodification—of sport, whereby players and clubs are bought, sold and traded in a global marketplace that Governments in this country and elsewhere seem to have little control over, and perhaps they also have too little insight into the financial machinations and the rationale for the changes that happen. But if those changes come about, especially if they come about as dramatically as they have done with Rangers, and if they lead to the potential loss of great institutions that are of such cultural and financial importance to their local communities, Governments need to think about the extent to which they must improve their insight into those sporting institutions and those businesses, and consider their particularities. I hope that the Minister will comment on that issue too.

Finally, I will make what is perhaps a personal point. I echo the plea made by the hon. Member for Folkestone and Hythe that we should look at alternative models of ownership for football clubs and that the Government should also become engaged in a discussion about those alternative models. In my capacity as a constituency MP, I have been working with Pontypridd rugby football club and other Welsh rugby clubs to look at FC United of Manchester, which is a fan-owned football club with extremely transparent structures and financial arrangements. Those sorts of arrangements may provide the key for the Government when they think about how to frame policy, not only at HMRC but more widely across government, that will help to ensure there is a greater degree of transparency in ownership, management and—crucially—sustainability for institutions that are not simply sporting institutions or businesses but, of course, a vital part of their local community.

[Damian Collins]

I am grateful to the hon. Gentleman for picking up on something that I said. I wanted to clarify that although there is a role for HMRC, before HMRC becomes involved there is a role for the competition organisers to act as whistleblowers and bring in the relevant authorities if they think there is a problem. The competition organisers should be the first port of call and then there should be recourse to a higher authority if they cannot sort out the problem themselves.

[Owen Smith]

Again, I agree with the hon. Gentleman on that point. Clearly, there is a role not only for the authorities but for the clubs themselves—indeed, for the sport itself—to think about both the sport’s sustainability in the long term and the extent to which money is quite often eroding the ability of local clubs to represent a local community, whether that community is in Leeds, Pontypridd or, as in the case of Rangers, Glasgow. These clubs were not created for professional or financial benefit; they were created as part of community representation.

HMRC needs to reflect on that point when it deals reasonably, sensibly and even-handedly with those clubs, as it professes to do with all of the individuals and institutions with which it works. We have all encountered instances of individuals feeling that HMRC is not dealing with them even-handedly. I am sure that the Minister will want to assure us in a moment that HMRC always deals even-handedly with institutions and individuals. However, in this instance—a case in the public eye that is of such enormous importance, not only to Glasgow but to Scottish life in general and indeed to the representation of the UK on a wider, even global stage—I am also sure that he will want to make certain that HMRC painstakingly looks at the wider financial and cultural disbenefits of Rangers ever collapsing, and ensure that in collecting the tax, as it must indeed do, it understands that it must also make sure that that situation does not happen.

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[Mr Gauke]

The working assumption is as I have said, and as is in the public domain. The hon. Gentleman will be aware that there is redeployment within that, so that there are additional staff dealing with tax evasion. There is capability to reduce the number of staff working in processing, where the use of new technology can substantially reduce the need for manual work.

I cannot comment on the case of Rangers specifically, but I assure the hon. Member for Dunfermline and West Fife that HMRC is working with the administrators, alongside other creditors, to reach the best solution for the public purse and the club. We have heard how Rangers going out of business would be a disaster for Scottish football. The purpose of administration is to save the club and to ensure that creditors get as much as possible.

[Damian Collins]

On a point of principle, does my hon. Friend agree that it is wrong, when a football club goes into administration, for HMRC and other creditors to get paid only after all football debts have been settled?

[Mr Gauke]

As we have heard in the debate, that is a matter more for the English arrangement. There is currently a court case on the issue. I have a lot of sympathy with my hon. Friend’s view. There seems to be unfairness, and as I said, there is litigation on the matter.

The debate has been valuable, and I thank the hon. Member for Dunfermline and West Fife for securing it and raising the issues. There are constraints on what I can say, both publicly and privately, although I will always be happy to have a discussion with the hon. Gentleman. However, the constraints of taxpayer confidentially apply to me as much as anyone else, so I am not given all the information. The debate has been useful, and I thank the House for allowing us to hold it.