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6.2 pm
Philip Davies (Shipley) (Con): I thank the Speaker for granting this important debate on the taxation of gambling. I hope that this brief canter round the course will not preclude him from allowing longer debates on a similar subject in Westminster Hall if requested in future.
Although I have no pecuniary interest to declare, I should declare that as a former bookmaker I have a great interest in the subject of gambling in general and the taxation of gambling in particular.
It is important to set the scene. The UK leisure industry employs 2.3 million people-9 per cent. of the UK work force-and accounts for 25 per cent. of all new jobs. There are 200,000 hospitality, leisure and gambling businesses in the UK, generating £85 billion per annum, or 6 per cent. of gross domestic product. It is Britain's sixth largest industry. The Exchequer receives more than £30 billion a year from the industry, and the gambling sector contributes more than £1.5 billion to the Exchequer in betting and gaming duty alone. The industry has an enviable reputation across the world for its regulatory regime and for the high-quality and responsible operators within it.
However, recent Budgets have imposed taxation rises on the gambling industry. In 2007, we had an increase in the casino tax bands; in 2006, we had the introduction of amusement machine licensing duty and VAT on fixed-odds betting terminals in licensed betting offices instead of gross profits tax at 15 per cent; and in 2009, we had the introduction of casino duty at marginal rates on poker income. Also in 2009, we had an increase in bingo gross profits tax from 15 to 22 per cent.
I want to concentrate initially on bingo. It is an important fabric in the local community. More than 1 million people play regularly, at more than 500 clubs nationwide. It plays an important and positive part in local areas, through employment, charity work and, perhaps most importantly of all, social interaction for many people. A number of Government decisions have had a significant impact on bingo, resulting in more than 100 clubs closing since 2003. More have closed so far in 2009 than in the whole of 2008. For example, there has been the smoking ban, which had a devastating impact on bingo clubs, and the reregulation of machines. In that context the latest Budget, which removed VAT and increased the gross profits tax on bingo from 15 to 22 per cent., is the final nail in their coffin.
The Treasury's Red Book estimated that the changes made in the Budget would benefit the industry by approximately £15 million. In fact, the reverse has been the case. The Budget led to a tax increase on the industry of approximately £16.5 million. Perhaps the Exchequer Secretary can confirm whether the intention was to benefit the bingo industry, and whether she accepts that the Budget has actually resulted in a tax increase on it.
As the Exchequer Secretary knows, the Bingo Association commissioned Ernst and Young to understand the impact of the 2009 Budget on the bingo industry and seek clarity as to what the correct level of GPT should be to
ensure consistency with the Red Book projections. The main findings of the Ernst and Young report were, first, that to achieve the Exchequer yield anticipated in the Red Book, the rate of GPT should have been set at 18 per cent. rather than 22 per cent.; secondly, that even the smallest single bingo club companies, which are the most vulnerable to closure, particularly in the current economic climate, will suffer an increased tax burden; and thirdly, that the effective rate of tax for bingo operators has increased from 23.6 per cent., which I believe was already too high, to 25.2 per cent.
The Treasury predicted that the loss to the Exchequer from the removal of VAT on participation fees would be £50 million in 2009-10, rising to £55 million in 2010-11. Ernst and Young believes that the real reduction was only £41.5 million, which is also based on a 17.5 per cent. VAT rate. That is why the increase in gross profits tax to compensate is way over the top.
We have to remember that those conclusions were based on the presumption that the bingo market would remain stable over the next two to three years. Unfortunately, due to the smoking ban and the recession, the closure of clubs means that that is probably wildly optimistic. That can be illustrated by the decline in tax receipts from the sector. Bingo duty receipts have fallen from £77.2 million in 2006, before the smoking ban, to £62.7 million in 2008. In the light of that trend, it is perhaps surprising that the Treasury has predicted an increase in duty receipts of £35 million by 2012.
Whatever the Government's motivation, and despite their desire to see tax receipts rise to do something about the national debt, the increased taxation burden will only mean more and more clubs closing, leading to higher unemployment and lower tax receipts for the Exchequer. Surely increasing taxes on bingo in that way is grossly unfair given its importance in many areas. To do so during the deepest recession since world war two can only be described as vindictive. Why has it happened? Is it because the Prime Minister is vehemently anti-gambling, even though he seems to be quite happy to gamble with the nation's finances? Is it because the Government fear the reaction of the Daily Mail? Or is it because this Labour Government are now so out of touch with their working-class roots that they no longer care about bingo or the people who play it?
Will the Exchequer Secretary tell me whether the Government accept the findings of Ernst and Young? If not, why not? If they do, what are they going to do to rectify the situation? I do not stand here to ask for preferential treatment for bingo. I merely ask that it be treated fairly in relation to other forms of gambling.
I shall move on to gaming machines, which also have an impact on bingo clubs. The Government are proposing to replace amusement machine licensing duty and VAT with a gross profits tax on machines. They claim that that will be consistent with other forms of gambling taxation and therefore be a simplification, and that it will be fiscally neutral rather than a tax-raising measure. However, the Government said that about the changes to GPT for bingo, so I hope the Minister understands why I am extremely sceptical that any such change would be fiscally neutral, as are many in the industry. I am afraid that the Government have completely lost their credibility and trust in that respect.
While we are on the subject of machines, may I make it clear to the Minister that machine income is now absolutely critical to preserving the futures of both bingo clubs and betting shops? Without machine income, many would go to the wall. On average, a third of both revenue and profit in bingo clubs, and about 40 per cent. of betting shop revenues, now comes from machines. Any tax increase would therefore be catastrophic for them, especially as roughly a quarter of betting shops now make less than £17,000 profit a year. Those shops, which make such low profits, still employ almost 10,000 people.
Mr. Don Foster (Bath) (LD): Will the hon. Gentleman remind the House whether there was an opportunity in 2003 to investigate GPT for machines? At that time, the Government dropped the proposal and said that they would not look at it again until conditions in the industry stabilised. Does he believe those have stabilised, or have they got worse, as he is describing?
Philip Davies: The hon. Gentleman makes a very good point and he is absolutely right-the state of the industry has not stabilised, but got worse. That only fuels the suspicion that the change is being made to try secretly to raise revenue rather than to help an industry that is on its knees.
I therefore urge the Minister not to make the change. The situation is extremely complicated anyway given the nature and category of machines, and tax differentials, which will probably be inevitable, will make it virtually impossible to come up with a fiscally neutral tax rate package. Getting the rate wrong would lead to very many job losses. The Association of British Bookmakers has predicted that the wrong rate could lead to almost 8,000 job losses in the bookmaking industry alone.
As we know, we are competing in an ever more globalised market, none more so than the online gambling industry. Businesses can locate themselves in the most tax-advantageous part of the world and operate from there, which is what we have seen happening in recent years.
The matter has now come to a head, with William Hill and Ladbrokes deciding to move their online betting facilities offshore. We should not criticise them for doing so. They have a duty to their shareholders and it has become totally unsustainable for them to keep their business here. For every £100 profit they make online, they will pay £1 or £2 in tax offshore, whereas they would pay £36 in the UK in a combination of GPT, VAT, corporation tax and horse racing levy. Clearly, it is an absolute no-brainer for them. Indeed, we should probably be grateful and surprised that William Hill and Ladbrokes have kept their online business onshore for so long, given that many of the firms that they compete with, which do not have shops in the UK, have been at such a competitive advantage for so long.
Surely the Government want to do something to bring those firms back onshore. They are missing out not only on tax revenues, but literally thousands of jobs that we could have here are instead being taken in places such as Gibraltar. Of course, the racing industry is missing out on the horse racing levy payments that bookmakers in this country pay. Even though the Government could realistically never have a tax regime as competitive as those offshore-especially taking the levy into account-I believe that there is sufficient good
will among bookmakers that many, if not all, would come back onshore if the UK tax regime was much more competitive than it is.
I do not believe that doing nothing is an option. I have already highlighted how so many betting shops are making barely any profit. Added to that, the telephone betting side of the industry is in rapid decline. Indeed, Ladbrokes has reported that its telephone betting revenues were down 41 per cent. in the first half of this year, and despite my very best efforts, it actually made a loss on that part of its business.
On the other hand, the online business has the potential for substantial growth. Therefore, may I suggest that the Minister speaks with bookmakers at the earliest opportunity to find a rate of tax that the Government could introduce to bring the online business back onshore? I suggest that that would need to be around the 2 to 3 per cent. mark. She may think that we cannot afford to reduce tax on online gambling by that amount and fear being criticised for encouraging gambling if she does so. However, it would not increase gambling, as people in the UK can already bet online with these firms. The Minister must also recognise that a tax of 15 per cent. on nothing yields nothing, whereas a tax rate of 2 to 3 per cent. on a business with a turnover in the billions of pounds would raise much needed revenue for the Treasury. It would lead to greater levels of employment, helping the people who got the jobs, increasing the tax take, reducing unemployment payments and giving the horse racing industry more income from the levy. In short, everybody would be a winner, except for the bookmakers who would face higher costs than they do offshore, but I still think that they would return to the UK if their online businesses were charged a more competitive rate of tax.
If the Minister remains sceptical on that point, I ask her to take a leaf out of the Prime Minister's book. When he was Chancellor, he faced a similar dilemma to the one that I have set out, back in 1999 when Victor Chandler moved his UK bookmaking operation to Gibraltar to avoid paying UK taxes, in particular general betting duty. That tax was payable on fixed-odds bookmakers and set at 6.75 per cent. It was effectively a levy on the stakes placed by customers. As more bookmakers from the UK moved to avoid this duty, and more threatened to follow, the then Chancellor abolished general betting duty in 2001 and introduced the gross profits tax.
The Government need to act again to deal with this second wave of bookmakers moving abroad, and it is more important this time as more and more gambling moves online and less and less is carried out in the traditional arena of betting shops and telephone betting. It is also easier to regulate an industry based here. I hope that the Minister will reflect on the importance of the gambling industry to the UK economy, and will take advantage of the opportunities that I have outlined.
Bingo and betting shops play a very important role in the local community, and just as pubs have successfully demonstrated their importance in the local community, I hope that the Minister will accept that bingo halls and betting shops play a similar role for many people. I hope she will discuss these matters with the gambling industry and that the Chancellor will bring forward measures in the Budget to address these concerns. I look forward to hearing her response.
6.17 pm
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): I congratulate the hon. Member for Shipley (Philip Davies) on securing the debate. I am glad to have the opportunity to continue the important discussion on the taxation of gambling. He mentioned three main issues-bingo clubs, gaming machines and online gambling-and I shall refer to all three.
The Government have worked hard in recent times to take on board the views of all interested parties with regard to gambling taxes. We continue to engage closely with relevant businesses and trade associations, including the Bingo Association. My officials and I enjoy a close working relationship with many gambling stakeholders, which helps to ensure that the Government can respond to industry challenges in a fair and appropriate manner.
As the hon. Gentleman will understand, I cannot use this debate to pre-empt any decision that my right hon. Friend the Chancellor may make on gambling taxation in the pre-Budget report or in next year's Budget. However, I am happy to talk generally about the Government's policy on gambling tax and reason for acting.
As the hon. Gentleman mentioned, numerous changes were made to the gambling tax regime at Budget 2009-bingo participation fees became VAT exempt, and bingo duty was increased to 22 per cent. For consistency, player-to-player gaming in casinos was made VAT exempt, and became liable to gaming duty. The Government also committed to consulting on the future of gaming machines taxation. The consultation began on 16 July and formally closed on 23 October. The responses are being analysed by my officials, who are clarifying information with the industry where necessary.
As I and my predecessors have told the House on many occasions, the Government recognise the importance of bingo clubs to their local communities, especially for the elderly and many women. As I have mentioned, since Budget 2009, bingo in licensed premises has been subject to bingo duty at 22 per cent. of gross profits. The changes in the Budget in 2009 continue a process of reform begun in 2003 when the bingo tax regime was considerably more complex and the tax burden higher. The hon. Gentleman asked for the reasons behind the changes in the Budget. The intention was simplification. We should remember that the effective tax rate for bingo in 2003 was about 35 per cent., and before the Budget was estimated to be about 24 to 25 per cent. Those estimates were formed from information provided by the bingo industry.
I would like to emphasise that the Government keep all aspects of the tax system under continuous review, and I have taken a keen interest in the taxation of bingo clubs during my time as Exchequer Secretary. As part of the usual pre-Budget process, I held numerous meetings with gambling groups, including the Bingo Association, and I have been in correspondence with many hon. Members regarding bingo tax. Over the summer, the Bingo Association provided more information to my officials on the impact of taxation on the bingo industry, including the Ernst and Young report that the hon. Gentleman mentioned. I had a meeting two or three weeks ago at which we discussed the content of that report.
I am sure that the hon. Gentleman understands that we need to analyse that information in detail and to take our time to ensure that it is accurate, given that the bingo industry is now saying that the information that it gave us before the Budget might not have been accurate. It is important that we analyse the document correctly. It is being analysed by my officials as we speak, and will of course be taken into account.
Regardless of any future decision on bingo taxation, the bingo industry has benefited from recent regulatory changes implemented by the Department for Culture, Media and Sport. Since February this year, bingo clubs have been able to offer up to eight category B3 gaming machines for play-an increase from four. Those changes could provide a boost to takings from gaming machines in bingo clubs.
I was also asked why we are looking again at gross profit tax on machines, given that we had the consultation in 2003 on gaming machines. The key reason for the decision not to go ahead with GPT on machines in 2003 was the uncertainty regarding the then Gambling Bill-it is now the Gambling Act 2005. The industry has now had a chance to adjust to the Act, and we are looking again at GPT. However, I stress that no decisions have been taken.
The consultation document proposed replacing the current duty-based regime with a tax based on gross profits. We have received responses from many industry groups, trade bodies, companies and individuals, and it is clear to me that this area arouses strong emotions. When I met industry representative groups in the Treasury, there was a divergence of opinions between them. Some were not averse to a gross profits tax in principle depending on the rates; other groups were totally opposed in principle.
For my own research, last week I visited two adult gaming centres and a seaside arcade in my constituency. I met the owners and operators, and we had a robust discussion about the consultation. All I can say is that we are currently analysing the responses received, and we will not take any decision lightly. No decisions have yet been taken, and all responses received will be given appropriate consideration. I thank the gambling industry and all individual businesses around the country for their engagement in the consultation process.
On offshore gambling, there is concern about the loss of tax revenue to the Exchequer and about differences in regulation between countries. Traditionally, gambling takes place mainly in bricks-and-mortar establishments, such as bingo halls, casinos and betting shops, and they are relatively easy for the tax system to deal with. The tax regime developed along place-of-supply principles, with operators based in the UK being liable for UK taxes. The growth first of telephone betting and, more recently, of internet gambling, presents considerable challenges to the tax regime, with remote operators based in other jurisdictions falling outside the domestic tax net. Reforms to betting tax in 2001, which moved taxation on to a gross profits tax basis, were intended to modernise the tax regime and create an incentive for the major UK bookmakers to grow their emerging internet operations from a UK base.
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