Finance Bill

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Mr. Edward Davey: I have some sympathy with the amendments, despite my attempt at a point of order, which you rightly ruled out of order, Mr. Hood. Although I have concerns that the Conservatives have arguably benefited indirectly from the industry. That should not affect how we discuss tax law. It is irrelevant how individuals or companies decide to organise their financial affairs with respect to politics, and our debate should not be prejudiced thereby. Although I wanted to check that the hon. Member for Croydon, South (Mr. Ottaway) would make such a statement, I welcome it. How we debate the issue should be completely independent of that donation.

On public policy, as the hon. Gentleman said, we have received briefings from the Sports Spread Betting Association, which made it clear that few firms in the industry currently make healthy profits. The Government have recognised in their reform of gaming and betting duty that because of the internet, such companies can easily go offshore. It is indisputable that we must organise the tax system to prevent many jobs and businesses leaving this country as people seek to reduce their tax liability through technological change.

The Government must respond to the probing amendment and prove to the Committee that the rates that they propose are appropriate and will not lead to business leaving the country. If that happens, the net effect for the Exchequer will be negative, and the yield that it hopes to reap from the tax will not be realised. It is our job in the House to ensure that self-defeating tax policies are not implemented. I hope that the Financial Secretary will take seriously the amendment tabled by the hon. Member for Croydon, South explain to the Committee the Treasury's analysis and thinking about the level of the rates, answer the association's points and convince us that the rates should not be lower than the Bill provides.

Mr. Jack: I first congratulate my hon. Friend the Member for Croydon, South on such a lucid explanation of betting matters. I should not say that he could well find alternative employment, but certainly on the one day a year when most of us visit a betting shop to place a wager on the Grand National, having my hon. Friend to explain the tax position would have been of great assistance—I might even have won, which I did not.

In fairness to the Government, and interestingly, in the Customs and Excise press release announcing what we are debating, there is an acknowledgement that the spread betting industry operates ``in a different way'' and, as my hon. Friend rightly said, it is subject to different regulatory requirements. The Government made their statement about how they thought they ought to equate spread betting with normal betting by revised arrangements of the gross profit tax. However, once the industry saw the proposals, its perception of the impact of the revised arrangements clearly differed from that of the Government.

When the Minister first read the Budget, I am sure that he saw cogent arguments why the numbers in the Bill were right. I should be grateful if he would explain what detailed assessments were made in the real world of the impact of the proposals on spread betting companies. Had the illustrations of my hon. Friend been taken into account, a revised and more generous regime would have been devised, but it was not so. In the interests of understanding our the Government's position, perhaps the Financial Secretary will take us through the calculations or assessment of the spread betting industry that led to his conclusion and tell us whether he feels that maintaining the Bill's status quo may tempt companies to go offshore, with a consequent total loss of tax.

Mr. Andrew Tyrie (Chichester): I shall not detain the Committee long because almost all the points that I wanted to make have been made already. I congratulate my hon. Friend the Member for Croydon, South on his excellent exposition of the subject, which shows personal experience on one or other side of the industry. I note that agreement is breaking out on the Opposition benches, even agreement that the point of order made at the beginning was out of order, which is refreshing.

It is clear to anyone who has examined the industry that it is likely to see huge growth. The introduction of new technology will almost certainly ensure that. The industry will also benefit enormously from improved worldwide communication technology and become an increasingly international industry. The UK has a competitive advantage in the industry; we have people who know how it works, are good at it, have thought about it and have been in the game from the start. We have a particular interest in ensuring that we do not kill off the industry or seriously damage it at an early stage. Bearing in mind the industry's unique features, we are probably setting the rates too high, and there must be something in the point made by the industry that taxation on a month-by-month basis, without any provisions for the carrying forward of losses, is unacceptable. I will be grateful if the Minister bears those points in mind; he will probably not want to move too far on them, but if he can at least say that he is considering them, that will be a step forward.

Mr. Timms: I, too, enjoyed the account given by the hon. Member for Croydon, South, which was a helpful explanation of the issues in the clause. The hon. Member for West Dorset (Mr. Letwin) said this morning that there was nothing exciting in the Bill. Clearly he has not read recent issues of the Racing Post because, if he had, he would have seen that there has been much excitement about what clause 6 will make possible. It will radically reform the way in which betting is taxed and create the right competitive environment for UK-based bookmakers to develop their businesses domestically and internationally. It will give punters a better deal and secure for the Exchequer the revenue stream from betting in the long term.

The largest UK bookmakers have made it clear that, as a result of the reform, they will be able to absorb the tax and end the 9 per cent. deduction that they charge on stakes. That will mean that punters will pay no tax. The clause will also allow UK bookmakers to develop their domestic and international business from an onshore base and therefore compete from a position of strength in a growing global market, in particular for telephone and internet betting. Many UK companies, including all the major ones, have gone offshore in the past year or so in order to offer low tax or tax-free telephone and internet betting.

The hon. Member for Croydon, South asked whether I thought that the bookmakers would deliver the zero deductions. They gave firm assurances before the Budget about removing reductions and have since restated them. Every major bookmaker quoted since the Budget has said that it will end the deductions, and there have been no conditions or caveats to those assurances. Any failure to deliver would be taken into account during future Budget processes, but I expect that competition in the industry will dictate that the reform will deliver deduction-free betting. One player in the industry would not be able to impose deductions if no other company was doing so.

The big UK bookmakers have said that they will relocate their offshore operations to the UK. The extra domestic and international betting turnover that the reform will generate should offer increased employment opportunities in the United Kingdom and benefit the betting and the racing industries. Government revenues will share in the gain from increased turnover in the medium term. I shall read out the reactions to the reform. Ladbroke's said:

    ``This tax reform will benefit everyone. It is a fantastic example of Government listening to business.''

Coral's described the reform as a

    ``bold and enlightened decision by the Government which will guarantee the long term prosperity and advancement of the UK betting and racing industry''

There was similar enthusiasm from William Hill, which stated that the reforms were

    ``Great news for the British punter and great news for UK plc.''

Revenue estimated at £25 million will be lost in the short term as a result of the changes, but in the medium and long term, we expect it to be more than recouped as international and online betting is increasingly captured by UK industry. As the hon. Member for Chichester rightly said, the UK industry is strong and highly respected. If we had not made the change, it is likely that revenue would gently and steadily have declined as online betting grew, almost all of it being hosted offshore.

In the last week we have received receipts for last year's betting duties. After a number of years of buoyant growth, general betting duty receipts fell slightly by about 1 per cent. It is widely accepted that if no change had been made that decline would have continued, perhaps at a faster rate, in the years ahead.

The amendments deal with the new spread betting industry. An objective analysis suggests that it has been more lightly taxed than other sectors of the betting industry, and we have carefully considered the fairest way to deal with it. At one point, the industry favoured leaving the old arrangements in place just for spread betting but that would not have been viable given that it is a minor part of the overall betting industry and that the money involved is a small proportion of the total. Having a separate regime for spread betting would not have made sense and hon. Members did not suggest that. However, Customs analysts considered the data provided by the spread betting firms, which calculated the right rate of tax within the new arrangements. They concluded that the figures quoted by the hon. Gentleman of 3 per cent. for financial spread betting and 10 per cent. for sport spread betting were right. That was fair to the spread betting firms and to other players in betting, as substantial extra costs are incurred by spread betting firms. For example, they pay significantly higher salaries; they face the cost of compliance with financial services regulations and, in the case of financial spread betting, they carry the substantial costs of hedging. That is why the rate that we propose for financial spread betting is so much lower.

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