Offshore Gambling and the Horseracing Levy

John Penrose Excerpts

Wednesday 13th July 2011 Commons Chamber

[The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (John Penrose)]

I join other colleagues in congratulating my hon. Friend the Member for West Suffolk (Matthew Hancock) on securing this debate on an important issue. It is a timely debate in that, as he mentioned, we are in the middle of a consultation process on how to move forward with the levy. My hon. Friend is also absolutely right to say that one of the major issues around the levy is the problem of offshore gambling. He has timed his debate beautifully; I shall try to address the points he raised.

I agree with everyone who has either spoken or intervened in the debate that it is common currency and commonly agreed that the levy as it currently stands is broken. It does not work. People on all sides—whether they are involved in the gambling industry or in racing—are pretty united in their criticism of the levy. The solutions they propose, however, are quite divergent, which is part of the political problem I face. I think that everyone is united at least in their critique of it. People often make three or four points, but they all revolve around the issue that my hon. Friend raised several times—that we need to create a level playing field. It is essential to do that.

The current levy fails to deliver a level playing field in a number of ways. It can be seen, first, in the comparison between onshore and offshore betting, as rightly and eloquently set out by my hon. Friend. I would not dream of disagreeing with his analysis of the problem; it is self-evidently true, and it is a problem that, I think, has grown steadily as the migration from onshore to offshore has taken place over the last five or more years.

The levy also fails to create a level playing field—in the minds of many, at least—between classic traditional bookmakers and betting exchanges. It would be wrong for the Government to try to play favourites between either of those two parts of the gambling industry. As a free-market Tory, I think that would be particularly wrong, but from the point of view of the levy, it is important to avoid any inbuilt bias one way or another between bookmakers or exchanges. At the moment, because these are two different kinds of businesses—they operate on a different kind of business model, with betting exchanges being much higher-volume and lower-margin organisations than traditional bookmakers—there is a great deal of disquiet about the absence of a level playing field between those different kinds of business within the gambling industry.

It would also be fair to say that the way in which the levy is currently set up and the levy board is required to operate is almost guaranteed to create an adversarial relationship between bookmaking or gambling in general and the racing industry. That cannot be helpful. If we could get the two sides to co-operate, we could achieve a unanimity of purpose in terms of trying to grow the total amount of interest in, and betting on, horse racing. With an adversarial relationship, it is extremely difficult for such productive discussions to take place.

[Mr Andy Slaughter (Hammersmith) (Lab)]

I do not want to take much time out of the Minister’s response, but many of my constituents work for Betfair, which is based in my constituency. I know that the Minister has said some warm words about Betfair, which is voluntarily paying £6 million to the levy and is on record as saying that it believes the whole industry should contribute either to the levy or to whatever replaces it. I was a little concerned to hear the Minister say that there might be a distinction to be drawn between online firms and traditional bookmakers. It would be useful if he could put it on the record that the Government have no intention to make the customers of online betting firms such as Betfair subject to the levy, as some parts of the industry have indicated that they should be.

[John Penrose]

I am very happy to repeat my previous comments that it was extremely responsible, and extremely welcome, of Betfair to decide to make a voluntary contribution to the levy. That was a very responsible reaction from the company. I also echo the hon. Gentleman’s remarks in that I too wish that more offshore organisations of any kind would follow Betfair’s lead and behave in a similarly responsible fashion. As for whether people using betting exchanges should or should not pay the levy, that is precisely what we are in the middle of consulting on, so it would be rather premature for me to prejudge that. I know that organisations like Betfair and other betting exchanges are making strong representations as part of the consultation, which will, of course, be listened to extremely carefully for precisely that reason.

As my hon. Friend the Member for West Suffolk mentioned, we are in the middle of a consultation. We have ended a pre-consultation and are now digesting the results before starting an official consultation on the levy, which will be more broadly based. I shall quickly sketch out the three options under consideration.

The first option would involve relatively little change to the current levy, but would have the important benefit of removing politicians from the decision-making process. I cannot claim that that option offers to fix some of the other issues, such as that of offshore betting, but the requirement for extensive political lobbying from both sides would be reduced. That would be a step, although only a partial one, in the right direction. The suggestion has drawn relatively limited comments and contributions from both sides of the debate, but it is at least an option.

The second option, which I think my hon. Friend mentioned in passing, is effectively a voluntary or contractual arrangement between gambling and horse racing, along the lines mentioned by my hon. Friend the Member for Tewkesbury (Mr Robertson), who represents Cheltenham race course, an important part of the jump racing organisation. That option would involve a contractual arrangement between racing and the gambling industry, in which politicians would, by definition, have no direct involvement. We might help to broker the discussions leading to it, but it would be a private contractual deal, although the Gambling Commission might then require both sides to be party to the arrangement in order to be granted a gambling licence. That would provide back-up.

The third option on which we are consulting is the betting right, or racing right, which my hon. Friend the Member for West Suffolk suggested. That option is widely desired in the racing industry, although for perhaps obvious reasons the gambling industry is a great deal more concerned about it, and it has been sketching out the reasons for that concern in some detail, as is only fair and proper.

I want to place on record that, as part of our pre-consultation arrangements, the Association of British Bookmakers has proposed an interesting fourth option, which we shall unveil in due course. It would be improper to breach the association’s confidence in that regard, but we will publish its proposal as another alternative. I mention that purely to illustrate that there is a great deal of involvement, engagement and creative thinking on all sides about how to square the difficult circle of fixing the levy in a way that will be sustainable and stable, that will provide a source of income that is fair to both the gambling industry and the racing industry, and that will be a stable solution for a long time to come—stable not only economically but politically, so that it will not require endless political intervention that would be regarded by other sports as alien and unexpected.

On my hon. Friend’s point about offshore gambling, I am delighted to be able to provide some breaking news. Tomorrow, a written ministerial statement will be tabled in the House—I trust that I am not breaking parliamentary rules by pre-announcing it in the House, as I cannot be accused of ignoring the House of Commons. I am delighted to announce that we intend to move, as fast as possible, towards a system that will, to a great extent, fix the problem of offshore betting. We will switch away from the current system, which has driven many bookmakers offshore for entirely understandable and logical commercial reasons, to one based on point of consumption rather than point of production. That rather arcane phrase means that anybody based anywhere in the world who wants to sell gambling services of any kind—this applies more broadly than to horse race betting alone—to any consumer of gambling services based in the UK, will in future have to have a Gambling Commission licence.

That gives rise to a number of important changes in the current arrangements. As I said earlier, it will apply not just to horse race betting—although it will obviously have implications for that—but to a far broader range of activities. It will apply to online poker, online roulette, and all the other gambling services that are provided. What is vital is that it will increase the amount of consumer protection for any punters in the United Kingdom who use those services. At present, those who use an online gambling service provided by a UK-based company already regulated by the Gambling Commission can be pretty sure that it is a reputable company which is properly looked after, and that they are therefore protected to the full extent of the law. A provider based offshore may also be regulated by a reputable jurisdiction, but it may not be. It is extremely hard to know where some of the websites are based, and it is just possible that someone might find that he was gambling with the equivalent of Arthur Daley Gambling, based off Tripoli, and that as a result he had very little consumer protection. We aim to fix that.

[Matthew Hancock]

I warmly welcome the Minister’s announcement, which will come as a huge relief to the racing world. I am also surprised and delighted by the speed with which I have received a response in policy terms, and by the Minister’s recognition of the pressure that exists. Will he tell us how much he thinks the reform will raise, and what impact it will have on the levy?

--- Later in debate ---

[John Penrose]

I am afraid that I cannot do that, much as I would like to, for a couple of reasons. We are dealing first with consumer protection, and reform of the horse race betting levy will be a subsidiary issue. However, as my hon. Friend knows, we have stated explicitly that some of the three options in our pre-consultation document will require primary legislation in order to be feasible, and that will open the door to their feasibility.

The change that we propose will have other benefits. It will not just improve consumer protection; it will also help to level the regulatory playing field in the way that my hon. Friend has requested. It will improve our ability to deal with betting integrity, because it will be easier to capture information about potentially suspicious betting patterns and refer it to the relevant authorities as required.