Examination of Witnesses (Questions 320
- 330)
TUESDAY 3 FEBRUARY 2004
HM TREASURY
Q320 Chris Bryant: Sorry, you misunderstand
me. I do not mean the principles or the processes whereby you
set about taxing, but whether or not you should tax the Lottery
at all because you are no longer considering it as part of the
gambling market which was the principle why the Lottery should
be taxed in the first place and then it was landed on the 12%
for those complex reasons.
John Healey: In fact, originally
the introduction of the Lottery was considered in terms of the
whole economy spend and tax take, not just on gambling. That was
true of the approach we used to set out the memorandum to the
Committee in 2000-01. If one uses the principles that I have tried
to set out in the memorandum, the question of a fair tax rate
on the Lottery is one that would need to take into account some
of the very special features of the Lottery. I would be concerned,
like I am right across the range of taxes, that a particular tax
in part of the judgment makes a fair contribution to the funding
of public services for the future. With the Lottery there are
some unique competitive advantages. There is no other gambling
product which has primetime BBC promotion. There is no other gambling
product which is quite so freely available on the high street.
There is no other gambling product which has quite the freedom
to advertise in this way. Those are the sorts of factors that
one would need to make a judgment about in assessing whether or
not a current rate of tax for duty is fair. Those are very different
questions from this hypothetical examination of an alternative
universe in which the Lottery did not exist, particularly as this
is now such a well-established part of national life and two-thirds
of us regularly play the Lottery. It is increasingly implausible
to base your tax decisions on that sort of proposition.
Q321 Chris Bryant: I think we all
agree that that world is dead but the bit I am trying to get at
is you have your three principles: efficient and fair, sustainable
and business friendly. Your understanding of fair seems to relate
to how the Lottery operates within the market of gambling and
other elements of the market whereas I guess many people when
wanting to say what is a fair return to the Exchequer would say
it should be nil because basically you are choosing between good
causes, which are the good causes that tax pays for, running the
health service, education, transport, police, etc., and good causes
which are facing a very tough time at the moment because the amount
of money coming in through the Lottery is diminishing, each of
the pots is getting smaller and on top of that, because the Government
has decided that we are going for an Olympic bid, even less of
the money is going to be going to those good causes. The principle
of fairness to many people out in the country might be that there
should not be any duty on the Lottery at all.
John Healey: Some may argue that
but I regard that as a rather extreme position to take. The Lottery
is a part of the gambling activities that we have in this country
and it has certain unique advantages over any sort of competitor
products. We would consider a degree of consistency with the approach
we take with other gambling regimes is important but not only
that in isolation. I am prepared, and indicated earlier, to consider
this question about whether potential reforms of tax on the Lottery
may indeed benefit the amount of money available for good causes.
I simply say to you that that would not be a policy aim that we
could capture in decisions about duty or fiscal policy if one
did not move away from what was the original founding concept
which was it had to be tax neutral. That is one of the reasons
why I am suggesting we will now apply a different approach, one
that is essentially consistent with the approach that we have
taken to reforms since 2000-01 in the other gaming regimes. I
think it does not lead me to the sort of judgment you are encouraging
me to make, which is a fair contribution from the Lottery to the
public purse through the taxation system is nil.
Q322 Chris Bryant: But it might be
less than 12.
John Healey: One might make a
judgment about the duty rate in the context of a broader basis
for such duty decisions. One might also take the view that the
current structure and design of the regime is not now serving
our purposes well and is not best suited to the sort of changes
that we can anticipate and, indeed, in some cases want to encourage
for the future.
Q323 Mr Doran: You said just now
that the original founding concept was tax neutrality, and I can
understand that, but has anyone actually looked at the performance
of the Lottery and the income to the Treasury over the past ten
years and made any assessment of whether the end result has been
tax neutral?
John Healey: As I have explained,
particularly the further you get from the point of introduction,
the less certain you can be about that type of calculation. Those
who were Members of the Committee will remember in 2000-01 that
the Chief Secretary, when he gave evidence, confirmed that 12%
was broadly in the range of tax neutrality. Broadly, give or take,
that is probably as far as one can calculate with any confidence.
The tax neutral rate is probably there or thereabouts.
Q324 Mr Doran: Does that mean yes
or no?
John Healey: In a sense, Mr Doran,
you are pointing to precisely the problem we have got. We are
trying to base policy on a calculation which is increasingly uncertain
and increasingly implausible and which posits the essential question
of what would be the pattern of spend, the pattern of tax and
the tax take to the Treasury if we did not have a National Lottery.
Q325 Mr Doran: When we look at the
figures that you have provided in your report, and these are very
helpful, it does seem that the proportionate share of gambling
revenue being paid by the Lottery is increasing. For example,
if you look at 1995-96, there was £612 million of Lottery
duty paid which represents 39% of all the total gambling tax receipts.
Am I right in that?
John Healey: Are you looking at
the table that underlies paragraph eight?
Q326 Mr Doran: That is right. I may
be misreading this but 39% in 1995-96, that was the total which
the Lottery duty represented of all gambling tax revenue.
John Healey: Yes.
Q327 Mr Doran: You will see for 2002-03,
the latest figures, the income from Lottery duty has reduced to
£550 million but the proportionate share has increased to
43%. I do not know if that is the first or second year when the
new tax treatment, for example, of the horse racing duty—
John Healey: General betting duty.
Q328 Mr Doran: These sorts of things
were removed and you have got the new system and the gross profit
tax. Is that something that we are likely to see in the future
where the Lottery bears an increasing proportion of the income
from gambling or revenue from gambling for the Government?
John Healey: I think what you
can probably detect as an element of those figures is precisely
as you suggest, an impact of the reforms that we have made since
2000-01 in the other gambling regimes, in particular that of the
general betting duty. What has happened with the reforms that
we have made on general betting duty I have indicated in Annex
A just as an exemplar of how we apply these new principles. Essentially
the total tax take from the general betting duty has gone down
during that period. In a sense this highlights conceptually one
of the flaws in the previous approach which was that, strictly
speaking, if one wanted to stick tightly to tax neutrality one
would need to reduce by some degree Lottery duty in order to reflect
what was a lower tax take in general betting duty. The trajectory
of general betting duty because of the impact it has had, including
the repatriation onshore of significant business that had moved
offshore and online, the additional 2,000 jobs created in the
sector, the increased turnover on profitability, the revenues
for general betting duty are first of all at the moment higher
than they would have been if we had not made the changes but are
projected to take us back to a point at which we had the revenues
previously. If one was slavishly following this tax neutral principle
one would need to adjust Lottery duty downwards at present to
a degree and then adjust upwards as the tax take of other gaming
regimes and, indeed, any other changes in the general economy
took place.
Q329 Mr Doran: There are just two
points I want to make to you. One is you said earlier that the
Lottery is part of the gambling industry in the UK and, therefore,
my assumption is that we treat it as part of the gambling industry
for tax purposes. The point that you have just made in response
to my comment about the increasing share of responsibility for
the Government's take of the total of gambling tax needs to be
examined because my understanding of what happened on the general
betting duty was the Government recognised that a significant
amount of the gambling industry was moving offshore because of
the development of technology. I know there was a lot of lobbying
from the gaming companies and, quite rightly, the Government responded.
It may be, as you say, that there will be an increase over the
years but in the meantime the Lottery duty is taking up the slack
for that Government decision. The second point I would make is
in relation to your comment that the Lottery is part of the gambling
industry. Lottery is not in the same territory as the rest of
the gambling industry, the betting shops, the casinos, the horse
betting industry, because it is state controlled and subject to
very, very rigorous licensing conditions and in virtually every
respect, because of the direct link between the DCMS, the Lottery
Commissioner and the Lottery operators, is subject to more government
control than any other part of the industry. It is a development
which we saw in the early 1990s, promoted by government, controlled
by government, and now, because of the amount of monies which
have been received and subsequently invested in our infrastructure,
cultures a whole range of benefits in this country very, very
different from the rest of the gambling industry. How do you respond
to the suggestion that the Lottery should not be treated as simply
a cash cow to support the Government's income from the gambling
industry?
John Healey: I would not accept
that is how we are treating it. The tax take from the Lottery
depends ultimately on the amount of business that the Lottery
generates, the number of players and the amount that they spend
on the Lottery. What our experience of the reforms over the last
two or three years has shown, and this was your first area of
interest in terms of its place within the other gambling regimes,
and the fresh analysis we have used both beforehand and in monitoring
the effect, is with the introduction of the Lottery there was
probably a greater diversion of spend from existing gaming activities
than was perhaps anticipated previously. You may remember it was
judged at around 1% in the original calculations and that is probably
up to about 15% in terms of the diversion. Essentially that is
the impact of a new product into the market of existing gambling
activities. In terms of the issue of questioning the degree of
government control over the Lottery, clearly this is a matter
that is more directly the responsibility of my colleagues in the
DCMS.
Q330 Mr Doran: I presented it in
that way to argue that the Lottery should be dealt with differently.
John Healey: In terms of the judgments
we make about tax, I think it is important and appropriate that
we place it in the proper context alongside other types of gambling
activities. There is a degree of diversion and interplay between
the two. In terms of the regulation, there are aspects of the
Lottery, and I am sure the Committee has or will pick this up
with DCMS ministers, which are unique and essentially reflected
in the tasks that are set for the regulator (a) to ensure propriety
in the conduct, (b) to protect the players' interests and (c),
within that, to maximise the revenue to good causes. Whilst in
regulatory terms there may be a good case for a different and
separate regime, I think there is an appropriate case for saying
in tax terms that we should be looking for a consistency of approach
alongside other gambling regimes, which is indeed what I tried
to set out in my memorandum.
Chairman: Thank you very much, Frank,
and thank you very much, Mr Healey.
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