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25 Feb 2009 : Column 126WH—continued
I suppose that that is better than saying that it is too expensive to answer the question. The phrases “relevant factors”, “specific circumstances” and “specific factors” are the most commonly used defence by the Treasury, but it never explains what it means. Will the Minister take the opportunity presented by this debate to tell me what the “relevant factors” are? Will she explain why she thinks that it is a “fair gambling tax regime” and why bingo has to be subject to double taxation? I would also like to know why after six years of protest from MPs on all sides, the Government refuse to accept that bingo is taxed too heavily.
Another issue that is raised time and again by the Treasury is that the root of bingo’s problems is not fiscal and that other factors such as the smoking ban have had a significant impact on bingo. It is worth noting that it has never been claimed that double taxation is the industry’s only problem. I agree that the smoking ban has had an impact on the industry, as it has in other areas, but the ban was not opposed by the industry, which actively supported the Government. However, the key point is that although the smoking ban had a negative effect on our nation’s bingo clubs, it has no bearing on the fact that those clubs remain subject to a burdensome system of taxation that is more severe than that applied to betting shops, casinos, online bingo, online casinos and poker, online betting, football pools and gaming machines.
Indeed, if one examines the changes made to the football pools in 1995, 1999 and 2002, one sees that the tax burden was reduced through changes to the rates of duty. The Government’s stated motivation for making those tax cuts was not that tax was “at the root” of the pools industry’s problems, but that it was necessary to help the pools to recover from external factors. Let us compare that with the situation in which bingo clubs are closing over time, with a number of job losses. The Minister may remember that she was instrumental in bringing about those changes, but she appears to have changed her tune now that she is in office. Will she explain why the football pools qualified, yet the bingo industry does not?
One important factor that needs to be addressed is the Government’s assertion that changes in pay-as-you-earn or corporation tax within bingo are assumed to be offset elsewhere in the economy, as recorded in a letter to the hon. Member for Sunderland, South (Mr. Mullin) from the Minister. In other words, the Treasury believes that any loss of employment as a result of the closure of bingo clubs—because of double taxation—is automatically compensated for by job creation elsewhere. I am shocked by that assertion. Surely in these difficult economic times, we need to help our businesses. To assume that more jobs will be created is extremely naive.
John Mason (Glasgow, East) (SNP): The hon. Gentleman compares bingo with other forms of gambling. I must admit that I am not a great enthusiast of gambling generally, but the largest bingo club in the UK is in my constituency. On the question of fairness, does he agree that even if there was an interplay with PAYE, that would apply to other forms of gambling and the key issue is the unfairness of the way in which bingo is treated compared with casinos and other forms of gambling?
John Hemming: Indeed. There is an inequitable relationship and it is clear that the courts have taken the side of the bingo industry where relevant. It is as if the Government have it in for bingo. It is very difficult to accept from a commercial angle, which I come from historically, that there is a rational argument for what the Government are doing. Is the Minister aware of the positive effects that tax reform would have for the Exchequer and therefore the taxpayer through the preservation of the broader economic contribution from bingo clubs, including other sales and corporation taxes, local business rates, income tax and national insurance?
Paul Rowen (Rochdale) (LD): I congratulate my hon. Friend on securing the debate. Does he not agree that unlike casinos and whatever else, bingo halls are very much the preserve of the working class, particularly many women, for whom they are a safe haven and provide the chance to have an evening or afternoon out with friends? The closure of many bingo halls, as has happened in Rochdale, impacts on their ability to go somewhere where they can enjoy themselves.
John Hemming: It does seem sometimes that this Government do not listen to those people whom one would describe as working class. Although a wide range of people go to bingo halls—they are not all elderly; many younger people go to them, too—it is perhaps predominantly working-class people who go to them. As usual, however, the Government are not interested in the concerns of the working class.
Mr. Edward Timpson (Crewe and Nantwich) (Con): I congratulate the hon. Gentleman on the work that he has put into the protection of bingo clubs, including the Mecca bingo hall in Crewe. Its 33 employees deal with 2,500 visits on average a week and it has 12,500 members. Perhaps more importantly on the issue of taxation—this is where the Government need to think about whether they are cutting off their nose to spite their face—that single bingo hall brings the Exchequer £1 million of taxation a year and if the Government let the number of bingo halls continue to slide at the rate that they are, they will end up with no taxation.
John Hemming: The hon. Gentleman is entirely right. The fact is that bingo, in common with any industry that employs people, pays other taxation. The issue is that, uniquely in gambling, bingo is subject to two levels of taxation, so economic activity is being reduced. It is a strange argument from the Government. They have been encouraging the more dangerous, more risky, forms of gambling, to which people get really addicted and then find that their finances suffer as a consequence, while penalising what is probably the most anodyne form of gambling that one could find—it is organised at times in Methodist church halls. The Churches are organising bingo, yet the Government see it as an evil monstrosity that all these working people are enjoying themselves playing bingo and want to tax it out of existence as they do with other things that they seem to have it in for.
It would be wrong of me not to mention a positive step that has been taken by the Department for Culture, Media and Sport. The increase in B3 gaming machines from four to eight assists bingo clubs, and it will go some way towards helping the industry, which welcomes
the measure. However, it is sad that that should have been achieved through gaming machines rather than by reducing taxation on the underlying activity. It is a bit like offering a crutch to someone you have kicked, and it does not address the underlying problem of double taxation. The Government would appear to agree with that point, as the Department has called for tax reform on bingo.
The explanatory memorandum to the Gambling Act 2005 (Gaming Machines in Bingo Premises) Order 2008 contains what I think may be DCMS’s first public announcement that it supports calls for the removal of VAT. It states:
“The consultation produced 12 other proposals for assisting the bingo industry. The most popular of these was removing VAT on bingo participation. This is a matter for Treasury but DCMS continues to put the case for this reform.”
That seems to show a division at least within the civil service. Given that the Department responsible for the industry is supportive, that the bingo industry is supportive and that the Treasury has been prepared to make concessions on tax—for instance, with football pools—why is the Treasury now ignoring all calls for support and reform?
Members who are aware of bingo’s taxation problems will know not only that the current situation regarding VAT on bingo participation fees is unfair and anomalous but that the growing legal precedent confirms that the position is in contravention of the European Union’s VAT legislation. The recent VAT and duties tribunal ruling in favour of the Rank Group Plc with regard to interval, or mechanised cash, bingo games confirms the position. Given the discriminatory system of double taxation and the weight of recent legal rulings, it is difficult to see why the Government are resisting calls for its removal.
Since the VAT and duties tribunal ruled that the tax system was illegal, a large part of the industry no longer pays VAT on interval bingo. The cost of ending double taxation on bingo may now be as little as £10 million. That could be funded several times over by the anticipated benefit to the Exchequer of recent proposals to increase stake and prize levels on gaming machines. Will the Minister enlighten us?
John Mason: Does the hon. Gentleman agree that the amount of money involved is quite small? He mentions £10 million. The Government seem to have been able to find money for the banks and for boosting the economy in other ways. At a time of financial problems, we need to boost the economy. Would not that be a good use of a small amount of money, as it really would boost the economy?
John Hemming:
I would understand the Government’s position if they continually had to provide a subsidy, but their policy on bingo is likely to undermine their revenue take. By maintaining excessive taxation on bingo, they are shutting bingo halls and thus losing the business. Either consciously or unconsciously, Government policy is closing an important sector. The sector does not have many voices speaking for them in government, because it provides services to the working people of this country, and those people are generally not heard by the Government. The Government have decided to go in hard against an essentially harmless form of gambling
that is predominantly enjoyed by the working classes. I agree with the hon. Gentleman that it is a relatively small sum of money, and it is counter-productive for the Government to maintain dual taxation.
Finally, I thank my Liberal Democrat parliamentary colleagues for trying to amend last year’s Finance Bill and calling for a review of bingo tax. Unfortunately, that was not forthcoming. I hope that the Minister now recognises the political support, and the valuable contribution that bingo makes to communities across the country. I look forward to her response. I hope that she realises the great support for the bingo industry on both sides of the House, and that she will impress on her ministerial colleagues and the Prime Minister the valuable commodity we have in bingo, both socially and financially. I thank Mr. Speaker again for allowing me the opportunity to speak on a subject that is important to many of our constituents. It should be remembered that 200 Members of Parliament have bingo clubs in their constituencies.
4.14 pm
The Exchequer Secretary to the Treasury (Angela Eagle): I congratulate the hon. Member for Birmingham, Yardley (John Hemming) on securing this debate. I am glad to have the opportunity to continue this important discussion on the taxation of bingo clubs.
The Government work hard to take on board the views of all interested parties, and we continue to engage closely with the Bingo Association. That close working relationship enables us to keep abreast of developments in the bingo industry, so that we can respond to any challenges that the industry may face in a fair and appropriate manner. The Government made no change to the taxation of bingo in last year’s Budget year. We looked carefully at the evidence provided by the Bingo Association on the state of the industry, but our assessment remains that tax is not at the root of its problems and that altering the tax regime would not be appropriate.
John Hemming: Will the Minister give way?
Angela Eagle: I thank the hon. Gentleman for giving me the chance to get into my speech! However, I happily give way to him; it is his debate.
John Hemming: This is perhaps the nub of the Government’s argument; it will be interesting to see the background figures for the calculations that make them think that dual taxation is not at the heart of the industry’s problems.
Angela Eagle: I am happy to tell the hon. Gentleman that the level of taxation for bingo is about the average for gambling. He said that bingo is unique in having double taxation. That is not true; amusement machine licence duty and VAT is also paid on gaming machines. Bingo’s effective rate of taxation is not the 32 per cent. that he cites, but is between 24 and 25 per cent. That is about the average for all methods of gambling, with the exception of betting, which has a slightly different history. Given the way in which all gambling industries work, we do not believe that bingo is out of line.
The Bingo Association has always vehemently objected to what it calls double taxation. As I said, it is not
unique to bingo, yet the hon. Gentleman asserts that it is. That is not true, so we must agree to disagree with the Bingo Association in our Budgets and pre-Budget reports. We spend a great deal of time exchanging information and having meetings; indeed, I have met the Bingo Association and many hon. Members concerned about the implications for the industry, particularly for bingo halls and other premises in their constituencies.
That does not mean—this is a familiar experience for me as Exchequer Secretary—that those with whom I engage in the run-up to pre-Budget reports and Budgets always agree with the Chancellor’s decisions. I suspect that it is in the nature of those interrelations that there may be disagreement on the particular issues that have been raised. In my experience, people almost always wish tax to go down rather than up; and if it goes up they do not like the result. However, I pledge that we will continue to work closely with the Bingo Association and other interested parties to consider the situation that they find themselves in when pursuing their business, and to do what we can to assist them.
Evidence shows that the industry’s problems, including club closures, stem from a combination of factors, including increased competition from the wider leisure sector and changing public tastes in leisure activities. Those are long-term trends, and they predate the implementation of the Gambling Act 2005 and the smoking ban in 2007. As the hon. Member for Birmingham, Yardley said, the smoking ban has had an effect. I would be the first to acknowledge that, as I have in many meetings with the Bingo Association; indeed, I thank the Association for being so supportive of the smoking ban. That acknowledgement is there for all to see.
Hon. Members will be aware that bingo in licensed premises is subject to bingo duty at 15 per cent. of gross profits. In addition, most participation fees for bingo are subject to VAT at the standard rate. That is what the Bingo Association and the hon. Member for Birmingham, Yardley object to. On a comparable basis, however, the effective rate of taxation on bingo is broadly consistent with the rate on gaming machines, casinos and the national lottery.
As recently as 2003, the current system of bingo taxation replaced a much more complex regime, under which effective bingo taxation was considerably higher, at 35 per cent. That reform clearly represented a substantial cut in tax liability for the bingo sector, but ever since, it has continued to make vigorous representations to cut the effective rate even further. I would expect it to do so, and we are happy to keep all factors under consideration as we look at the structure of tax on all forms of gambling in the run-up to each pre-Budget report and Budget. I expect to see the Bingo Association again, as I have done prior to previous Budgets.
A particular issue that is often brought to my attention is the rate of bingo club closures across the country. Information recently provided by the Bingo Association suggests that 25 clubs closed in 2008, compared with 37 in 2007. Obviously, club closures are alarming, especially for those individuals and communities closest to them, but closures do not represent a new trend or a fault with the current tax treatment of bingo. In fact, an average
of 17 clubs closed every year between 1994 and 2004, highlighting the long-term structural changes that have affected the sector.
As Members are no doubt aware, Her Majesty’s Revenue and Customs is involved in a legal dispute over a breach of fiscal neutrality, to which the hon. Gentleman referred. The fact that the dispute is ongoing means that it is inappropriate for me to discuss in detail issues relating to fiscal neutrality. I merely note that an appeal has been made against the initial court decision. The appeal is due to be heard in March and a conclusion is expected between May and June.
Since the reform of bingo taxation in 2003, the Bingo Association has lobbied the Government for the removal of VAT on bingo participation fees. We do not believe that that would solve the industry’s problems, and it would cost tens of millions of pounds, which would have to be recouped elsewhere. As I have mentioned, the bingo sector is taxed broadly in line with comparable sectors. I thank the hon. Gentleman for his generosity in commenting on the changes made in social legislation—a part of the law for which the Department for Culture, Media and Sport has immediate oversight—which has made it easier for bingo organisations to operate. He also mentioned the additional allowance of B3 gaming machines, which was announced by my DCMS ministerial colleagues on 4 February. As everyone knows, a reduction in the standard rate of VAT was announced as part of the fiscal stimulus in the previous pre-Budget report.
John Mason: The point of using taxation as a fiscal stimulus is an important one, especially at this time. The Chancellor felt it worth while to cut VAT generally by 2.5 per cent., which costs about £12 billion. Does the Minister agree that if it would boost the bingo industry—she might not be convinced that it would—it would be worth while cutting VAT on bingo? It would cost relatively little and help bingo clubs.
Angela Eagle: Bingo participation fees cannot be removed at a relatively small cost—it would certainly be much higher than the £10 million mentioned by hon. Members today. In any Budget-making process, a balance must be struck between cutting taxation and getting revenue in, as all hon. Members know. We could always cut VAT on one particular form of gambling over another, but we would have to justify doing so and think about how to recoup the money. In the run-up to Budgets, those decisions must be balanced.
Paul Rowen: My hon. Friend the Member for Birmingham, Yardley (John Hemming) mentioned that the Government have changed the rules on gaming machines. Does the Minister accept that any loss of income from reducing VAT on bingo halls is likely to be offset by the increased revenue from the additional prize money now allowed on gaming machines?
Angela Eagle: No, because the changes to gaming machines that the DCMS has introduced do not bring in extra revenue. The machine licensing duty is a flat rate, not a percentage, so it does not bring in extra revenue.
There is a positive side to the bingo reforms that the Government have introduced, even if the Bingo Association, and those who support its view on so-called double
taxation, do not approve of the current tax regime. The hon. Member for Birmingham, Yardley courteously mentioned that in his speech. We have talked about the increase in B3 machines and the reduction of VAT, which is part of the temporary fiscal stimulus. However, there is also the issue of category C machines, which the DCMS is looking at, and on which it hopes to make some announcements in due course. Of course, the reforms in the Gambling Act 2005 abolished the requirements for 24-hour membership of bingo clubs, which makes it easier for them to attract new users to their clubs.
John Hemming: Much of this comes down to a discussion of facts and assumptions. Will the Minister release the basis upon which the Government make their calculations, so that we can identify where the discrepancies are between that which the bingo industry understands to be the case and that which the Department thinks to be the case?
Angela Eagle: The hon. Gentleman is asking whether we can release details about the way in which we cost potential Budget decisions. We can certainly give broad ideas, and I have had this discussion with the Bingo Association on many an occasion. According to our calculations, it always massively underestimates the costs of the tax changes that it suggests. In fact, prior to the last Budget, we discussed the cost of removing bingo participation fees. The costs that the association quoted were similar to the figures mentioned by the hon. Members for Crewe and Nantwich (Mr. Timpson) and for Birmingham, Yardley. We calculate that the costs would be far higher.
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