Lord Ashton of Hyde
Main Page: Lord Ashton of Hyde (Non-affiliated - Excepted Hereditary)Horserace Betting Levy Regulations 2017
Lord Ashton of Hyde Excerpts
Lord Ashton of Hyde
That the draft Regulations laid before the House on 7 March be approved.
Relevant documents: 29th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord Ashton of Hyde) (Con)
My Lords, the Government are proposing to extend the horserace betting levy to betting operators based offshore. Currently, betting operators in Britain are required to pay the levy, whereas those based offshore but otherwise in identical circumstances are not. This is manifestly unfair. Alongside this we are setting the rate of the levy, providing long-term certainty for betting and racing industries.
Horseracing is an extremely popular sport, being the second best-attended sport in Britain last year. Some 6 million people enjoyed a day at the races in 2016 and it is an important contributor to the economy. The symbiotic relationship between betting and racing is well established. The principle of transferring funding to racing from the proceeds of betting under statutory arrangements dates back to 1928 and the levy itself has been in place since the early 1960s.
The levy generally works well, providing distinct funding for specific purposes. Areas of expenditure include prize money, veterinary research and education, and upholding integrity. These areas are also crucial from a betting perspective. For example, a healthy prize supports large and competitive field sizes, ensuring that racing remains attractive as a betting product. However, wider changes have meant that the levy is no longer fair to either betting or racing. Given the introduction and subsequent rapid growth in remote—primarily online—gambling in recent years, this has created a system which puts British-based operators at a competitive disadvantage. It has contributed to a significant decline in levy receipts.
While I applaud and pay tribute to those betting operators that have chosen to make voluntary contributions to the sport, efforts at securing a long-term arrangement have failed to materialise. The Government have been left with little choice but to take action to ensure fair competition among betting operators. The UK is by no means unique in this regard. France, Ireland, Germany and others all have similar statutory arrangements in place.
The Government’s proposed changes to the levy have two principal objectives. They will create a level playing field between all betting operators and provide a fair return to the racing industry, helping to sustain and develop the sport. The levy is a pre-existing state aid, as it was in place prior to the United Kingdom’s accession to the European Economic Community, as it then was. As we are making material changes to the levy, we now require state aid approval from the European Commission. The Government are seeking state aid clearance and these regulations will come into force only once this approval is granted. We have today been informed by the European Commission that state aid approval will not be received before 1 April. Therefore, the reformed levy will not be in place on this date. However, we are confident that clearance will be received shortly. The statutory instrument provides for the reforms to come into force once state aid clearance has been received. Until that time, the 56th levy scheme, as determined by the Secretary of State, will take effect from 1 April, ensuring a continued flow of funding to the racing industry.
I turn now to the levy itself. The levy will be payable on bets on British racing made by customers located in Britain. The location of the operator will be irrelevant. The levy will apply equally to all: bookmakers, including pool-betting and spread-betting operators, and betting exchange providers. The levy rate will be set at 10% of a betting operator’s gross profits on such activity and it will apply whether the bet is placed at a course, a high-street bookmaker, or online.
The Government considered a range of evidence in arriving at a fair levy rate. This included responses to three previous consultations on the levy and extensive engagement with representatives from the betting and racing industries. We have also considered the recent history of the levy, the overall landscape of the betting market and the findings of an independent report on the funding of racing.
Alongside the headline rate, we are proposing a threshold amount. As a result, no operators will pay levy on their first slice of gross profits derived from taking bets on British horseracing. This exempt amount will be set at £500,000 and will mean that the majority of small and medium-sized operators will not be required to pay the levy. The Government are of the view that a rate of 10%, with a £500,000 de minimis threshold, is a fair and proportionate contribution from betting to the mutual interest it has in a good-quality racing industry.
A fixed rate provides a foundation for betting and racing to make longer-term investments with confidence. However, the market can change, so it is important that the levy can respond. Therefore, the regulations require the Secretary of State to review the rate of the levy within seven years.
The changes I have outlined will make necessary alterations to the levy scheme itself. In addition, the Government have previously announced that we intend to make changes to the administration of the levy to reduce administration costs and remove government from day-to-day involvement relating to levy expenditure. We will consult on this second phase of levy reform in due course and the issue will return to this House then. That is a matter for another day.
These reforms will ensure a level playing field for competition for all betting operators, and will give racing a fair return from those who make significant profits from the British racing product. The levy will support funding for a range of areas, including prize money, integrity, veterinary science, and equine welfare.
As we approach the final furlong towards these much-needed reforms, the Government believe that resolving the unfairness in the current system will enable betting and racing to move forward and to work together to grow both industries in the mutual benefit of a sustainable and vibrant racing product. I beg to move.
Amendment to the Motion
Lord Ashton of Hyde
My Lords, I thank all noble Lords who have made interesting contributions to this debate, and a number of very important points. The levy has been around for many decades and needed fixing. It is clear that the existing system is unfair and that the fudge, as my noble friend Lord Mancroft called it, creates more money for horseracing in general and is fairer. It includes things like veterinary research, which the noble Lord, Lord Trees, talked about. Since 2000, £32 million has been raised from the levy. This will raise more money and some of it can go to things such as veterinary research.
The noble Lord, Lord Lipsey, raised a number of points. His opposition to the levy is something of a well-trodden path, and he was honest enough to say that some of the technical reasons he was putting forward were really based on the fact that he does not approve of the levy. Before I go on, I should acknowledge that he has been completely open, and we have had useful meetings. We absolutely listen to his views and respect his knowledge but, ultimately, we have agreed to disagree.
Betting and racing have a well-established, intertwined relationship, and the Government are clear that the levy continues to be necessary to aid horseracing and the equine sector, reflecting that mutual interest. But it must be right that all operators who derive significant benefit from British racing should contribute.
On the legal basis mentioned by the noble Lord, Lord Lipsey, the levy is a state aid. Section 2 of the Gambling (Licensing and Advertising) Act 2014 allows the Government to extend the levy in a state-aid compatible way, using secondary legislation. At the time, my noble friend Lord Gardiner, who I am glad to see is in his place, was explicit that the power had to be broad enough to enable the Secretary of State to make changes to ensure state aid approval. That was Parliament’s clear intention when enacting the power in 2014. So there is no need for primary legislation. The point of securing the power in 2014 was to allow us the flexibility to use secondary legislation, and that power is broad enough to address all the issues to secure state aid approval.
We have thought through very carefully the right way to apply the state aid requirements to the British context. We consider that our proposals, taken together, represent the right approach for Britain. The exempt amount means that we can protect smaller operators, and the diversity of the betting market at racecourses in particular. There is no justifiable reason for differential treatment between different types of betting operators going forward.
There was talk about the challenge to state aid approval in the European court. The noble Lord, Lord Lipsey, questioned whether racing would have to repay funds in the event of a successful challenge, but that will depend on the reasons why the European court sets aside the Commission’s decision. Racing would not be liable to repay historic funds. We are confident that the European court will uphold the decision of the Commission to approve the levy as compatible state aid, as it did in the French case, so we do not expect that to happen. The noble Viscount, Lord Falkland, was worried about the seven-year period being a long time, but I can confirm that the Secretary of State has to review the levy within seven years—if need be, it can be sooner than that. Looking ahead, in terms of the transfer of functions to the Gambling Commission and racing authority respectively, we will consult on this in due course. This will provide an opportunity for all interested stakeholders, including the noble Lord, Lord Lipsey, to inform our consideration of this issue.
The noble Lord, Lord Donoghue, talked about media rights and he is right that they have increased in recent years. For example, they were £90 million in 2012 and increased to £128 million in 2014. But media rights are a distinct commercial product and are voluntarily entered into. Many online operators do not purchase media payments, so relying on media payments alone would not secure a contribution from many online betting companies to racing. Racing has told us that the current price for media payments has reached a peak. Since January 2017, some high street betting shops—Ladbrokes, Coral and Betfred—have not been showing pictures from Arena Racing Company racecourses due to a media rights dispute. This demonstrates the uncertainty attached to this form of income. The noble Lord also asked whether we had changed our mind on the Levy Board collection since March 2016. For the time being, collection remains with the Levy Board and we will be consulting on the transfer of the collection function to the Gambling Commission in due course.
The noble Lord, Lord Lipsey, said that we were wrong about the Tote paying the levy; the Tote on course is liable to pay the levy but amounts paid are negotiated with the Levy Board. These regulations abolish that differential treatment and apply the levy equally to all operators.
We think that these reforms will make a profound difference to the British racing industry and will help the sport to grow as an attractive betting product. I hope that my explanation will have satisfied the noble Lord, Lord Lipsey, sufficiently and will allow him to withdraw his amendment.
Lord Lipsey
My Lords, this has been a really excellent debate and the arguments on all sides have been well expressed. I just say that the Government, by laying these regulations, have disposed but—at the end of the day, and whether the noble Lord, Lord Howard, likes it or not—the Commission, our courts and the European court will decide. I do not wish to put this to a vote tonight. We will see in the light of history who turns out to have been right. I beg leave to withdraw my amendment.
Amendment to the Motion withdrawn.
Motion agreed.