Offshore Gambling (Licensing)

Philip Davies Excerpts

Tuesday 7th February 2012 Commons Chamber

[Philip Davies (Shipley) (Con)]

I should begin by declaring an interest as a racehorse owner and breeder. Despite that, I oppose the Bill introduced by my hon. Friend the Member for West Suffolk (Matthew Hancock). I do not quibble with his argument on a point-of-consumption tax on principle. My objection is that it addresses the wrong issue. In practice, the matter is far more complex and the measure is doomed to fail if it does not address the issue of tax.

As my hon. Friend knows full well as a Government insider, the Department for Culture, Media and Sport and the Treasury are already looking at the key issues. In July last year, the Government announced a proposal to regulate the remote gambling industry on a point-of-consumption basis to enhance the protection and regulation offered to UK online customers. Following that proposal, the Treasury announced its intention to review the taxation regime for remote gambling to bring it into line with the basis of regulation for the industry.

My hon. Friend is clearly a champion of the racing industry, so I am surprised by his unquestioning enthusiasm for the measure. He said that the levy had declined, which it has, but he failed to mention that bookmakers are paying more and more every year in picture rights. The combined amount of the levy and picture rights means that bookmakers are paying more than ever for their racing product, despite its being less and less of the bets that they take. A funding deal is being negotiated, and if betting firms have to pay more than they can afford, there will be a decline in their operating profits and in what they can pay to racing.

The idea that the Bill would enhance UK consumer protection is absolute nonsense. The British market is one of the most highly regulated markets in the world, and therefore one of the most protected. If we look at the white list—my hon. Friend said that businesses offshore were unregulated; they are not, as they all have to be on that list—the whole point is to ensure that the UK accepts only countries that have similarly rigorous levels of protection. If I accepted his insistence that this was a matter of regulation rather than taxation, I would regard the Bill as a solution looking for a problem, but I can tell him that it would reduce consumer protection if enacted.

A Deloitte report, “The impact of a point of consumption tax on the remote gambling industry”, published in December 2011, concluded that

“given the low returns that a significant proportion of the smaller operators currently earn, even relatively low levels of POC tax could force some of the smaller firms to exit the online gambling market.”

Therefore, a 15% point-of-consumption tax would increase the risk to punters in an otherwise well regulated and safe market, as bookmakers would be forced to exit the UK market and less compliant operators remaining outside the tax net would still target UK customers.

The Deloitte report cautions against any point-of-consumption tax, which is interesting in itself, but clearly states that a 5% tax

“would distort competition, leading to as much as 13% of UK online gambling… moving into the grey market.”

A 10% rate of tax would see 27% of gambling move into the grey market, and a 15% rate would see 40% of punters seek a competitive offering in the black and grey markets, thereby defeating the Government’s stated policy objective of increasing customer protection.

Regulating markets in the way my hon. Friend proposes is proving extremely difficult for Governments around the world. Some have tried internet blocking and some have focused on banning financial transactions to illegal sites, but they have all been spectacularly unsuccessful; that applies not only to the gambling sector, but to other sectors. Since the Italian market was subjected to a high-level tax regime, illegal gambling in Italy is now believed to be worth between €12 billion and €20 billion a year in turnover.

The US internet gambling market amounted to around $6.4 billion in 2010, including sports betting, horse racing, casinos, poker and bingo. Only around 4% of that was on horse race betting, which is licensed in the US, and the remaining 96% derived from licensed betting companies based outside the US, for example in Costa Rica. Such gambling is regarded by the US authorities as illegal, but measures to prevent it have clearly not been wholly successful. Norway’s gambling watchdog has admitted that its online payments ban has “not been a success”, as research showed that more than half of internet gamblers now play as often as they did before the prohibition, but on unregulated sites abroad.

The Government are always vocal about formulating policy based on evidence. If they are serious about that, they should practise what they preach. The Deloitte report concluded:

“International evidence from jurisdictions such as the US, France and Italy indicates that many of the regulations introduced in these markets have failed to prevent the emergence of a large unregulated sector. These examples highlight the potential for customers to switch between licensed and unlicensed sectors, and point towards some of the challenges that are involved in introducing effective measures to prevent this occurrence… enforcement is challenging, with no existing system proven to be entirely effective and some jurisdictions losing significant shares of the market to the unlicensed sector.”

Without proper enforcement to protect the market, the reality is that only those based in the UK will be caught by the tax. We would therefore be in a perverse situation in which those operators that take out British licences and become subject to our taxation would be at a significant competitive disadvantage and their businesses would suffer accordingly. We would also create an unregulated monster abroad.

The motivation behind the Bill seems to be to raise revenue. As a result, it could even be rendered illegal under EU law. That could prove a hugely costly battle, and one that I am not entirely sure the Government could be confident of winning. My guess is that that is why they want to focus on consumer protection and regulation in an attempt to get around this particularly sticky wicket, but I am afraid that it is doomed to failure. If the POC rate were in single figures, many betting companies would accept it, but the higher the rate, the higher the likelihood of legal challenge.

Interestingly, Denmark has introduced a lower rate of tax for online gambling than for offline gambling, so that is an option now open to the UK Government. However, unfortunately there seems to be little evidence that they are reviewing such a policy. I was greatly encouraged by my hon. Friend’s view that the tax should be as low as possible, because getting 5% of something is a lot better than getting 15% of nothing.

Please do not take my word for that, Mr Deputy Speaker. The Deloitte report concluded that

“a cautious approach to the introduction of a POC tax appears to be appropriate. Setting an initial tax rate below 10% would be consistent with minimising the risk of promoting a grey market”—[Interruption.]

My hon. Friend seems to dismiss the Deloitte report, but he should bear it in mind that the Treasury Minister concerned used to work for Deloitte, so she might have more faith in its work than he does.

We need to focus on why some betting companies are based abroad. The reason is the level of taxation, and the level of taxation alone, so the Bill is a blunt instrument that does not address the need for a competitive rate of gross profits tax or allow businesses to reclaim their VAT in the UK. That would be a far more sensible point from which to start the debate, and one which many in the industry would be more willing to accept.

I fully appreciate where my hon. Friend is coming from, and I do not object to his proposal on principle, but I urge him to concentrate on the benefits of a single-figure rate of point-of-consumption tax, to weigh up the possibilities of a legal challenge from a powerful consortium and, most important of all, to address the elephants in the room—the high rate of VAT and the high rate of tax—and ensure that they are part of the solution, because if they are not, my hon. Friend’s proposal, which is genuinely intended, will be doomed to fail.

Question put and agreed to.

Ordered,

That Matthew Hancock, Nicholas Soames, Mr Gerry Sutcliffe, Mr Don Foster, Sandra Osborne, Ian Swales, Miss Anne McIntosh, Brandon Lewis, George Freeman, Simon Hart, John Glen and Mr Sam Gyimah present the Bill.

Matthew Hancock accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 30 March, and to be printed (Bill 304).