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Mr. Timms: May I just remind the hon. Lady that we introduced the 10p rate?
Julia Goldsworthy: The right hon. Gentleman is right, but that was pre-announced over many years.
I wanted to focus tightly on the clause and amendments, which is why I did not refer to local income tax. I am happy to discuss it with the hon. Member for Chipping Barnet (Mrs. Villiers), but I was referring to the recommendations of the Lyons report, which highlighted interim measures by which to deal with people living in the most valuable houses that have seen the greatest increase who may not be paying a proportionate amount. That might be a way of addressing the current inequality whereby the richest 20 per cent. of our society pay a lower proportion of their income in tax than the poorest 20 per cent. I have heard nothing from the Conservative Members about what they would do to tackle the issue, despite all the warm words.
Kelvin Hopkins (Luton, North) (Lab): On that very point, would not the hon. Lady make a stronger case if she were prepared to say that we should have a more progressive income tax system all the way up the income range, with much higher taxes on the very rich?
Julia Goldsworthy: That point is very well made— [Interruption.]
Julia Goldsworthy: I want to make some progress on the amendment and the clause stand part debate.
There are many ways of making the tax system more transparent and progressive, and there is no shame at all in saying that that should be a goal. The fact that the Conservatives have criticised our proposals on a higher rate of pensions tax relief shows what they actually believe. They speak all these warm words about making society fairer, but they are not prepared to put their money where their mouths are.
The key concern was raised by the right hon. Member for Birkenhead (Mr. Field), who made an eloquent case. The Chancellor was beguiled. It is difficult to know whether he was beguiled more by the prospect of grabbing the headlines in his final Budget or, unfortunately, by the tax credit system. The intent behind it is incredibly worthy and no one on the Liberal Democrat Benches doubts the Chancellor’s passion about these issues. Perhaps, however, his enthusiasm for the tax credit system is misguided when take-up rates are low in some areas. The tax changes introduced next year will disproportionately affect some groups.
Mr. Frank Field: I wonder whether the Liberal Democrats noticed what was almost a throw-away phrase by the Chief Secretary when he said that if we reflect on the impact of the Budget within households—the transference of higher tax for women, but lower tax for men, albeit with tax credits and so forth—it becomes clear that the overall change will benefit families. I thought that the whole principle of independent taxation was that there would be a difference within families—even within families that get on well together.
Julia Goldsworthy: The right hon. Gentleman makes a very good point. The same principle applies to tax credits. Overall, millions of families have been lifted out of tax, but unfortunately, millions of families have also encountered overpayments and are struggling to understand whether or not they have to repay them and, if so, whether it is justifiable to do so. The overall picture may look more rosy than the experience of many individuals.
The Chief Secretary is right to say that the tax proposals will make the tax system simpler. Removing the 10p starting rate will make it simpler, as will aligning national insurance with income tax bands, but there are consequences that will follow such simplification. I would therefore refer the Chief Secretary back to the Chancellor’s own remarks in the Budget speech, when he claimed that these changes would make the system fairer. He did not make enough play of the simplification, which could be accompanied by many unfair elements. It is important to recognise that.
As I said at the outset, I am not pressing the amendments, but we have had a valuable debate. We are limited in what we can do now, but I greatly look forward to further discussions and hope that Ministers will table some effective amendments on Report. I particularly hope that the Chief Secretary and his colleagues will pass on the sentiments expressed in our debate to whoever succeeds the present Chancellor so that, if we have this discussion next year, the debate will take into account the eloquent views expressed today. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The First Deputy Chairman of Ways and Means, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, put forthwith the Question, pursuant to Standing Order No. 68, That the clause stand part of the Bill.
Clause 1 ordered to stand part of the Bill.
Question proposed, That the clause stand part of the Bill.
The First Deputy Chairman: With this it will be convenient to discuss also clause 8 stand part and schedule 1 stand part.
John Healey: Clauses 7 and 8 and schedule 1 introduce new bands and rates of gaming duty and a new duty of excise, to be known as remote gaming duty. I will start by explaining the intention behind clause 7.
Gaming duty is charged on the gross profit—in other words, stakes minus prizes—of casino table gaming such as roulette or blackjack. That is known as the gross gaming yield. It is a banded system of taxation applied at different rates to different parts of gross gaming yield. Clause 7 will introduce new bands and rates of gaming duty for accounting periods on or after
1 April this year. The 2.5 per cent. starting rate has been abolished; the 12.5 per cent. rate increased to 15 per cent; a new rate of 50 per cent. is introduced for the largest casinos; and the bands’ limits have been increased in line with inflation. It may help the Committee if I deal with each of these changes briefly in turn.
First, let me deal with abolishing the 2.5 per cent. band of gaming duty. At the time the current regime was implemented, a 2.5 per cent. starting rate was justified by regulations that restricted the ability of the small casinos to compete. However, the Gambling Act 2005 has removed many of the restrictions applying to casinos, such as a 24-hour delay between taking out membership and being able to play. Restrictions on the number of gaming machines have been increased. This is a growing sector that has seen a reduction in the number of restrictions placed on it in regulation through the Gambling Act, and in which the number of small casinos is declining. As a result, the 2.5 per cent. of gaming duty, which was paid by all casinos on the first £546,000 of gross gaming yield, was effectively acting as a subsidy to larger and more profitable casinos—casinos that we want to ensure continue to make a fair contribution to our tax base. The 2.5 per cent. starting rate has therefore been removed by clause 7.
Secondly, I shall deal with the increase from the 12.5 per cent. rate to the 15 per cent. rate. Three in every five of the existing 138 casinos pay no higher rate of gaming duty than 12.5 per cent. Increasing that to 15 per cent., alongside the abolition of the 2.5 per cent. rate, increases the effective tax rate on these casinos to 15 per cent.—consistent with the rate of general betting duty.
Thirdly, I shall explain the new 50 per cent. rate on the largest casinos. Her Majesty’s Revenue and Customs estimates that the new 50 per cent. rate on gross gaming yield in excess of £10 million per six-month accounting period is likely to capture only the super-casino and a few of the high-end London casinos. Despite that, it helps to ensure that this growing sector continues to pay a fair contribution to tax receipts. Moreover, introducing the new top rate of duty now rather than later will provide any prospective bidder for the licence for the super-casino with the degree of certainty that has been looked for.
The head of tax policy at Ernst and Young, Chris Sanger, expressed a concern back in January that not knowing what the tax liability may be for the prospective super-casino could damage the ability of a council in the area of the successful bid to generate funds for regeneration. He said:
“When the casino companies are considering how much they can bid, they will have to factor in how much they will have to pay in tax. What we don’t know at the moment is what the Treasury plans to do”.
Finally, clause 7 will increase the gaming duty bands in line with inflation for accounting periods that start on or after 1 April this year. To revalorise the duty bandings in that way is entirely in line with the industry expectation and the practice we have had in every year since 1998.
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Rob Marris: Unless I did not hear properly, the Financial Secretary skipped clause 7(2), which I understand from the explanatory notes amends the rate of duty that applies in the case of unregistered gaming, putting it up from 40 per cent. to 50 per cent. I have no problem with the percentages, but I confess that, in my naivety, I thought that all gaming was registered—apart from dominoes in the pub or something. Can he give me, now or later, some examples of unregistered gaming that will be caught by the subsection?
John Healey: My hon. Friend is characteristically right. All gaming—in this case, through casinos—is required to be registered. What we have and what he refers to is a provision within the tax legislation to cover a particular eventuality. Mercifully, because we are a well regulated and well run country in that respect, we do not have to invoke the provision. The provision allows us to charge tax on the operation of what would be unregistered and therefore illegal operations, but operations that, nevertheless, may turn a profit. We would not wish them to avoid being liable for tax on that.
Clause 8 and schedule 1 impose a new duty of excise to be known as remote gaming duty, which would apply to remote gaming providers who locate in Great Britain. It might help the Committee if I explain some of the background to the measure. Remote gaming providers provide the opportunity to participate in games of chance for a prize by means of remote communication, such as the internet, television or mobile phones. As Members will be aware, it is currently illegal for a remote gaming operator to locate in the United Kingdom. Remote gaming is therefore outside the scope of the UK’s gambling tax regime. However, the Gambling Act 2005, which was ably steered through the House by my right hon. Friend the Minister for Sport —who I am glad to see is sitting on the Front Bench at the moment—will, for the first time, make it legal for a remote gaming operator to locate in Great Britain and to be regulated under the UK jurisdiction.
We announced in the 2005 pre-Budget report that, following the provision made in the Gambling Act for remote gaming licences to be offered in this country, remote gaming would be brought within the scope of gambling taxation. We intend to use clause 8 to do that. It will apply from 1 September this year—the same date as the relevant part of the Gambling Act comes into force. Schedule 1 goes on to set the rate of remote gaming duty at 15 per cent. That rate of duty is liable on net receipts—in other words, payments received minus winnings paid out from the remote gaming activity. That is consistent with the taxation of remote betting, which is subject to general betting duty at 15 per cent.
Remote gaming duty will be charged on the provision of facilities for remote gaming if the facilities are provided in relation to a remote operating licence issued by the Gambling Commission. That ensures that it is not possible to gain the legitimacy and the benefits of UK regulation without being subject to gambling taxation of any sort. If a provider of remote gaming locates in Great Britain and does not apply to hold a remote gaming licence, the provision of facilities for
remote gaming by that operator will also be liable to remote gaming duty. That is a parallel provision to the one that my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) pointed out in relation to clause 7.
Businesses that choose to relocate to Great Britain will have to register and then account for remote gaming duty on their net receipts from remote gaming. As set out in the regulatory impact assessment, the regulatory costs are modest. Her Majesty’s Revenue and Customs estimates that the cost of completing a registration form will vary from £7.93 to £15.75, depending on the size of the firm. We estimate the annual cost of completing remote gaming duty returns to be about £130 for all sizes of firm. I hope that those remarks have been helpful to the Committee. I commend the clause and the schedule to the Committee.
Mr. Paul Goodman: It is a pleasure to speak in this debate and in proceedings on the Finance Bill for the first time and it a pleasure to see you in the Chair, Mrs. Heal. It is also a pleasure to see the Financial Secretary, who I suspect will be doing much of the heavy lifting for this year’s Finance Bill. I know that he looks forward to that with unrestrained enthusiasm.
I am mindful that, shortly after I was first elected to the House, I served with the hon. Member for Wolverhampton, South-West (Rob Marris) on the Work and Pensions Committee. Our then Chairman—now Lord Kirkwood of Kirkhope—used to say at particularly difficult moments of inquiries that we were merely simple seekers after truth. I am going to take that as my leitmotiv for the discussion of clauses 7 and 8. It was not in a hostile spirit that we asked for them to be debated. We simply want to get to the bottom of some of the issues that they raise.
In setting out the case for clauses 7 and 8 and schedule 1, the Financial Secretary took us through the rationale for the changes to the bands. However, I do not feel that he fully analysed the effect of the clauses on the gambling industry—doubtless he will want to take the opportunity to do that later—and that is what I want to probe him on this evening. The section of the Red Book that concerns the clauses—it is on page 131—is very brief. It does not say much about their effect.
Perhaps the best place to start is with a story that appeared in The Daily Telegraph on 23 February—roughly a month before the Budget, when pre-Budget speculation was getting going. The article said:
“Gordon Brown will announce plans in next month's Budget to encourage the beleaguered online gambling industry to be regulated and licensed by the UK Government...In a surprise move, the Chancellor will use the Budget to announce that in return for a small amount of tax—possibly as low as 2pc or 3pc—companies can obtain a UK licence and still remain based overseas.”
John O’Reilly, head of online gambling at Ladbrokes, was quoted as being pleased with the supposed deal, saying, “It’s quite a breakthrough”—as though the decision had actually been announced. The article continued:
“He confirmed that if the rate was less than 3pc Ladbrokes would almost certainly sign up for a UK licence...Andrew
McIver the chief executive of Sportingbet, currently based in Antigua, said he intended to apply for a UK licence if the duty was ‘a nominal amount’.
“Clive Hawkswood, the chief executive of the Remote-Gambling Authority...justified the low rate of tax because ‘these companies have grown up in zero tax jurisdictions. They operate on very thin profit margins. A 15pc gambling duty would wipe out half the industry overnight.’”
The report does not seem to have been a one-off. Ministers and officials from the Department for Culture, Media and Sport have met representatives of the internet gambling industry no fewer than 26 times. As recently as last October, at an international summit hosted by the Government, the Secretary of State for Culture, Media and Sport said:
“Of course we ... want online gambling companies to come onshore.”
As we know, the Chancellor announced on Budget day that the new remote gambling duty, for which clause 8 and schedule 1 provide, would be 15 per cent.—the very figure that Mr. Hawkswood said would wipe out half the online gambling industry overnight. Clause 7 will increase the duty on annual gross gaming yields of more than £10 million from 40 per cent. to 50 per cent. As the Financial Secretary said, it will raise the starting rate of the duty from 2.5 per cent. to 15 per cent. Those changes, together with the measures in clause 8, will raise £30 million for the Treasury this year, £35 million next year and £35 million in the year after that. That £100 million represents quite a nice little earner for the Treasury. It will make a modest contribution to restraining the Chancellor’s borrowing, which, on his figures, is due to reach £153 billion by 2011.
The £100 million rise over three years was reported to have left the industry “gobsmacked”. Lady Cobham, the chairman of the British Casino Association, said that the move would
“hit the smallest casinos, often situated in seaside resorts, hardest with a knock on effect for jobs and industry suppliers.”
“exposes the contradictions that have characterised the Government’s handling of the entire process ... On the one hand, they are talking about developing new casinos, which enables money to go into regeneration, and at the same time they’ve brought in hugely increased tax rates”.
Ian Burke, Rank’s chief executive, said that the changes would make some casinos, especially those in the regions, unviable and asked:
“How can you make sensible long-term investment decisions if rules change at a whim?”
Stephen Hesford (Wirral, West) (Lab): Will the hon. Gentleman give way?
Mr. Goodman: I will certainly give way to the hon. Gentleman. I look forward to hearing from him many times during the passage of this year’s Finance Bill.
Stephen Hesford: The hon. Gentleman says that he is a simple seeker after truth, but the way in which he is setting out his case does not appear to be consistent with that. If he and his colleagues are concerned about the rates that have been suggested, why have they not tabled amendments to change them?
Mr. Goodman: I will address the hon. Gentleman’s question in a moment. It is important at the outset to set out the concerns.
Ian Burke said that the change had been imposed without consultation and that it was not signalled ahead of the Budget in any meeting with either the Treasury or the DCMS. Mr. Hawskwood concluded that the Chancellor
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