Horse Racing (Funding)

Philip Davies Excerpts

Tuesday 22nd November 2011 Westminster Hall

[Matthew Hancock]

I was just about to come to exactly that point, so the hon. Gentleman is prescient. There is consensus that the system is broken and needs to be reformed. We have no God-given right in Britain to some of the best racing in the world.

[Philip Davies (Shipley) (Con)]

My hon. Friend mentioned the fact that the levy is going up, which must be welcomed by everybody. Does he not agree though that that is only half the story and that one of the other major costs for bookmakers is the media rights that they pay? After 2012, those will increase by £50 million a year, which is a huge windfall for the racing industry. It will even benefit race courses such as the one in the constituency of my hon. Friend the Member for Skipton and Ripon (Julian Smith).

[Matthew Hancock]

I am not surprised that the amount being paid by bookies for picture rights is going up, not least because of the attractiveness of the sport and the amount of interest in racing. Of course the rise is good news but picture rights are only part of the story, because when a punter bets on a race the bet is based on the racing product that underpins it, so picture rights alone cannot be the answer to the question of how to fund horse racing.

I come now to what will be the core of my argument today and the core of the question that I will put to the Minister. During the last decade or so, what has been central to the fall in the value of the levy is the removal from British shores of almost all the big bookmakers. Of the 20 biggest bookies, only two are now domiciled in the UK. As I said earlier, that change reflects changes in technology that mean we can bet more online and over the phone. However, we must recognise the change and deal with it, if we are to put matters right.

The fact that bet365 and Coral are still onshore is great news, but we should not be in a position where we have to be grateful to bookies for staying onshore. The idea that we should thank people for paying the tax that they are due to pay is not one that we apply anywhere else in the tax system. In fact, everywhere else in the tax system we are pretty firm if people do not pay their tax. Although I am grateful that those two bookmakers—bet365 and Coral—have stayed onshore, many independent bookmakers cannot move offshore; they do not have the capacity to do so, as they are too small. Consequently there is not a level playing field even within the gambling industry to ensure that there can be fair competition in gambling.

The impact of that offshoring is felt across the board. There is a loss of millions in levy contributions and a loss to the taxpayer, estimated at £62 million a year, in lost betting duty. I would be very interested to find out whether the Minister has an updated estimate of the amount of tax that is lost in betting duty because of the number of offshore bookmakers.

--- Later in debate ---

[Matthew Hancock]

I think that the consensus in the House on the need to make such reforms is demonstrated by the fact that all the interventions so far have anticipated the next page of my speech. I am very grateful to my hon. Friend for his intervention, because dealing with that offshore loophole is the first thing that we need to do if we are to sort out the problems of financing the racing industry.

When I talk to individual bookmaking companies that are offshore, each of them argues that they would really like to be onshore and that the only reason they are not onshore is that all their competitors are offshore. I have worked in a small business and I understand that argument. If somebody else has taken a chunk of tax and levy contributions out of their cost base, of course others will want to do the same.

I have a solution, which is to create a level playing field; let us have everybody onshore and paying their fair share of tax and levy contributions. The solution that the Minister put forward in July was a neat and quite simple one. Changing the designation of the location of a bet from where the bookie is based to where the punter is based would turn what at the moment is legitimate tax avoidance into tax evasion. Because of the internet, we might not necessarily catch 100% of bets by making that change, but we could capture the vast majority. All the major bookmakers who want to advertise or do other business in the UK will come onshore because they would not want to break the law by not paying tax and levy on the bets placed with them. Most bookmakers are good corporate citizens, so a change such as this would ensure that all the major players would come onshore. That would not only help with the funding of racing, on which bookmakers’ own business models depend, but with the lack of a level playing field, which is a scourge of independent and small bookmakers.

[Philip Davies]

I understand the point that my hon. Friend is making. May I suggest a more conservative approach? I understand that he has great influence with the Chancellor. Has he thought about persuading the Chancellor to reduce the rate of tax on those offshore businesses, which will tempt them back onshore? As a keen economist, I am sure that my hon. Friend will appreciate that 5% of something is far better than 15% of nothing.

[Matthew Hancock]

I do not believe in tempting people to pay tax; I believe in ensuring that people pay tax. I myself am not tempted to pay tax, but I have to pay tax. Indeed, the tax is taken out of my wages before I even see it. People across the country would not understand a system in which we merely tempt people to pay tax; we need to insist that people pay tax.

Nevertheless, my hon. Friend makes an important point. As he suggests, if all bookmakers came back onshore, the amount that went into the racing industry through tax and the levy would be substantially higher and it may well be that at the same time we could look at the rates of tax being applied to bookmakers. Indeed, there is a Treasury consultation on that very point at the moment. I am sure that he and others will make a contribution to that process, and no doubt the Chancellor will listen to all Conservative Back Benchers equally.

The argument that the Minister made in July in his written ministerial statement, and in response to a question that I put on the Floor of the House, concentrated on widening the regulatory net and ensuring that gambling regulations cover all people in the UK who make bets; it focused on the regulatory aspect. Of course I support the argument that the appropriate regulatory net should cover all people gambling in the UK and the principles behind that argument, but expanding the reach of regulation is not as urgent for the financing of the racing industry as closing the tax and levy loophole. I urge the Minister to look at the issue from the perspective of fair and appropriate funding of horse racing rather than the wider changes to the coverage of gambling regulation that he seeks. I am sure that people will support him in both those aims but one is urgent and the other is important, and the distinction between urgency and importance is one that I am sure he recognises every time he opens his ministerial red box.

I am very pleased that the Treasury is conducting a consultation, but I want to ask the Minister some questions about how we will make the progress that is necessary and how we will turn tax avoidance into tax evasion through legislation. A tax change and a financial change to the levy could be made through the Finance Bill, and Finance Bills happen regularly. If that means that we cannot make the wider regulatory changes that the Minister seeks, so be it. The urgent task is on the financial side, because it is only when we tackle the offshore problem that we can go on to make the broader changes in the levy that many people want to see; indeed, I think that there is cross-party consensus about the need for broader changes in the levy.

With bookies back onshore and paying their share, we can finally establish the long-term funding structure that is both sustainable and fair to everybody involved in racing, including bookmakers, and it could improve the relationship between racing and bookmakers.

--- Later in debate ---

[Guy Opperman (Hexham) (Con)]

Thank you for the opportunity to speak, Mr Williams. I congratulate my hon. Friend the Member for West Suffolk (Matthew Hancock), who represents Newmarket, on making an eloquent and persuasive case. Right now, racing—along with its partners, the bookmakers—reminds me of the eurozone: a once mighty beast, unable to lead, unfit to govern, almost ungovernable and slowly being starved of cash, with solutions that too many vested interests will not address or embrace for fear of criticism by their members.

I have many things to declare. I am a category B licence holder and the only jockey in the House of Commons. As hon. Members will see, I am now in the heavyweight division. I blame the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) for many things, but I am afraid that the election and the delights of the House of Commons have caused me to lose the racing weight that I enjoyed when I won races in 2009 at Corbridge in Hexham.

I must also declare a definite bookmaking background. At age 11, at school, I survived by running an illegal bookmaking operation, which well and truly persuaded me that the bookmaker will always be one step ahead of the punter. On Fridays, we used to receive five boiled sweets in a bag, which was the currency that we used to run our bookmaking operation. My headmaster tried to stop that illegal betting ring, which clearly paid no tax, but was prevented by the outcry among the punters—my fellow schoolchildren—and by the positive encouragement of my parents, who were pleased to see, although I was not necessarily concentrating on my studies, that at least I was not such a daydreamer that I could not make a bob or two. So I have worked as a bookmaker and understand the difficulties and delights of that noble profession.

I should also declare an interest as a former horse racing journalist. For three halcyon years, I was the racing correspondent for that august racing journal, the Limerick Weekly Echo. I managed to put one Limerick bookmaker out of business by predicting the first, second and third in the grand national of 1981, an accumulator that one would wish to get a hold of. I have worked in horse sales, bred racehorses and worked as a stable lad in various places up and down the country. Also, although I confess that I am not nearly as wealthy as my hon. Friend the Member for Shipley (Philip Davies), who has many racehorses, I am in a syndicate with a part share in pointers and a chaser.

Over the years, I have ridden at a multitude of race courses, from Cheltenham to Kempton, and have enjoyed their delights, but I have a particular affiliation with and love for the finest race course in the world, which, as we all know, is Hexham. If hon. Members have not visited it, I urge them to do so. The team behind Hexham, one of the last few privately owned race courses in the country, have racing and the general public’s interest very much at heart. The race course provides employment, tourism and sport, supports breeding, vets and feed companies and is an integral part of society in the north-east. I know that I speak for all Members with race courses in their communities. Each of us will tell the same tale of how integral it is to their community, and how it provides much more than simply a race course where punters can place bets.

As the only jockey in Parliament and someone acutely interested in the issue, I can declare that the future funding of racing is important. It is a harsh reality that the number of horses going through the ranks of racing will increasingly diminish. That is patently obvious from the numbers. Horses will also be taken abroad to be trained. Why would anybody stay in this country to train a horse, unless they were particularly in love with the sport?

My hon. Friend the Member for West Suffolk spoke eloquently of the disparity in prize money for flat racing. The winner of a steeplechase race in France would get a minimum of £5,000, but the winner of a novice hurdle race at one of the lesser tracks here will probably end up with £1,000 or £1,200. By the time they have paid for travel, entry and all the other bits and bobs, it is almost not worth going to the races from a financial point of view. That 5:1 disparity in funding and prize money will eventually seep down into the system, causing the demise of racing in this country. Let us not be in any doubt. In what other sport is this country a world leader? One could make a case for cricket or a few other things, but in reality, racing is clearly the No. 1 sport at which this country is the champion, and we should support it. I certainly believe that it is a cause worth fighting for.

As others have said—I think that this opinion is cross-party—the present situation is patently untenable. We must address how racing is funded. The Government’s levy solution is clearly not sustainable in the long term. I applaud the Government’s efforts, which I know follow the efforts of previous Ministers, to find a radical new solution to how the levy is funded. I regret to say that I have little faith in bookmakers to volunteer a better system in future. That simply will not happen. My hon. Friend the Member for Shipley seeks a discounted version of taxation in relation to offshore. That is a commercial advantage to which bookmakers would sign up gratefully, but it would be no solution whatever.

It is important to note that such companies’ profits are significant. Betfair made £26.6 million to April 2011. William Hill made £277 million to 29 December 2010, and its chief executive’s salary is £1.65 million, which I suspect would fund Hexham about eight times over. All the other organisations make substantial profits as well.

[Philip Davies]

My hon. Friend should know that the fact that I have more horses in training than him is the reason why he is far richer than I am. He rattled off the figures, but will he acknowledge how much those businesses give to racing? Betfair, which has gone offshore, still gives £6.5 million of its £26 million every year in a voluntary levy to racing. If racing is so strapped for cash, is it not bizarre that the British Horseracing Authority is ignoring the advice of two eminent QCs that its customers should not pay a levy, and is spending money needlessly on a judicial review with William Hill? If the racing industry is strapped for cash, one would think that it would spend its money a bit more sensibly.

[Guy Opperman]

To misquote Christine Keeler, they would say that, wouldn’t they? The harsh reality is that Betfair is effectively trying to buy off the racing industry by making a donation that it does not have to make, in the hope that the matter will not be transferred back onshore. That is a strong assertion to make, but I suggest that there is ample evidence to support it.

It is also clear that bookmakers are seeing the writing on the wall. They are trying to diversify away from racing and into sports such as cricket and football. For example, on the subcontinent, in India, there is little betting on racing, because most of it is on cricket.

I urge the Minister to change the tax rules. If overseas operations wish to utilise British racing, they must pay more. I support entirely the idea that the punter based in this country is the source of the taxation.

I want to go one step further. If we do not have a solution and if we do not refinance racing, we will need to look at what to do then. If we do not resolve the issue and if the bookmakers and the Government do not address it properly, there will be only one solution. It is draconian, but it is the only alternative solution, and that is the nationalisation of bookmaking. That is the only way that we could approach the issue if bookmakers are no longer able or no longer willing, and the Government do not create a scheme, to fund it in this particular way. [Interruption.] My hon. Friend the Member for Shipley chunters from a sedentary position, although I accept that he never usually does that.

The point is that America may be the land of the free, but it has no competition in terms of state-sponsored bookmaking. Similarly, France, which is another competitive society, has a state-sponsored bookmaking system. That is also the way it is done in Australia and other places. Why is it that racing is funded so much better in those countries? Because everything that racing does goes back that way. I stress that I do not want to go down that route, but bookmakers and the Government need to understand that, if they do not sort this out, I regret to say that that will probably be the only remaining option.

I could say much more about how racing has been led and about the disaster of the whip debate and the way in which the British Horseracing Authority and Mr Roy have conducted themselves, but I have probably said enough.