Culture, Media and Sports CommitteeWritten evidence submitted by William Hill plc


William Hill endorses the submission made by the Remote Gambling Association, but makes the following detailed observations and suggested solutions.

William Hill is the UK’s largest retail bookmaker (25% of the UK retail market) and it also has the largest share of the UK’s remote gambling market (15%). William Hill PLC is listed on the London Stock Exchange and its Group Headquarters is in Wood Green in North London. In order to effectively compete in a highly competitive global gaming market, William Hill Online, is licensed and operates from Gibraltar, and licenses the rights to use the William Hill brand in the UK from its UK parent. William Hill supports 13,000 retail jobs across the UK including 800 support staff based in its UK operational headquarters in Leeds, as well as providing jobs in various locations including Gibraltar, Bulgaria, the Philippines, Israel and Nevada in the USA. A significant number of these are Leeds-based colleagues work for or support the Gibraltar-based William Hill Online business.

The Group is a substantial UK tax payer. With the nature of gambling taxes and the VAT exempt nature of the business, the Group already pays as much in taxes to the UK Government as it makes in operating profit (2011 operating profit of £275 million, tax of £272 million). William Hill has offered sports betting online since 1998 and gaming products since about 2001. Sports––betting was, before 2008, based in Leeds. Gaming has never been based in the UK because until 2007 it was illegal to operate an online gaming business from the UK. That business was moved to Gibraltar in 2007 and became part of William Hill Online in 2008. In 2009, partly in light of the failure by Government to address the unfair competition from betting exchanges and uncompetitive UK tax rates applicable to online gambling businesses, the sports betting business was closed in Leeds and a new William Hill branded business set up in Gibraltar as part of William Hill Online; to allow the Group to compete on the global market, to enable growth and the sort of investment in innovation required to establish and sustain a market-leading position.

The Effect of Government Proposals

William Hill and other UK major brands are now faced with ill-conceived regulatory legislation and a linked proposal on tax, to tax businesses on the place of residence of the customer, rather than the location of the provision of the service (the “Point of Consumption” or “POC”). The Group believes that the combined proposals, as well as limiting growth and innovation, will impose unnecessary dual regulation and add significant costs on its online business, hampering the ability to compete effectively in its chosen global markets.

We believe that the Regulatory Impact Assessment agreed by the Regulatory Policy Committee is defective. Neither the Regulatory Impact Assessment nor the explanatory notes accompanying this draft bill seem to have taken into account detailed market modelling or the views of operators. The Government’s policy case lacks rigour and the proposed policy will, in reality, do nothing to increase levels of UK consumer protection and may in fact have a detrimental effect by creating incentives for black market operators to try and service the UK market. And yet, despite this risk, it is legislation without any teeth to tackle those who do not comply or to prevent detriment to the competitiveness of those who do. The current estimation of expected voluntary levels of compliance at official level is very optimistic.

The Government predicates these proposals on the weakest of foundations, demonstrated most starkly by the reference to 57% of consultation respondents by number (from a total of 38 responses) agreeing with the preferred government option; a sort of “never mind the quality––feel the width” test.

The DCMS have failed to produce a detailed consultation response which analyses a range of clearly conflicting responses, or the cogent and credible research provided by operators at significant time, cost and effort. These seem to have been ignored because they do not accord with a deeply flawed policy proposal and has been progressed regardless of that informed contrary set of data.

There can be little doubt here that the regulatory proposals are merely being used here as weak cover for the proposed new taxation measures. Objectively there is no need for what is proposed, unless it is a necessary pre-requisite for the tax proposal that follows.

The DCMS Select Committee is in danger here of being misused by the Department to rubber stamp this flawed policy, which we have been advised is incompatible with EU law (see below).

Research Base

We have already provided research from Deloitte and the independent industry commentator Gambling Compliance to the DCMS, HM Treasury and this Committee that:

at a 15% rate, these taxation proposals will have a significant distortive effect on what is a mature online gambling market;

consumer protection objectives will be defeated by tax proposals; and

a weak enforcement regime will discriminate against major UK operators like William Hill.

As we have demonstrated in our previous submissions to both the DCMS and Treasury (appended) that the case for increased levels of dual regulation by the UK’s Gambling Commission is poorly evidenced, especially for Gibraltar-based operators. Indeed, the Government has recognised that the majority of operators currently targeting British consumers are subject to “established and effective” regulatory regimes.

The three reports in question are:

Online Gambling Regulation—Striving for Sustainability, Player Protection and Competition (Gambling Compliance August 2011);

The Impact of a Point of Consumption Tax on the Remote Gambling Industry (Deloitte December 2011); and

Online Gambling Regulation—Restrictive Tools and Competitive Markets: The Latest Evidence (Gambling Compliance March 2012).

A summary of the research is set out below.

Gambling Compliance

No one regulatory model can simply be transplanted into another jurisdiction with the same success.

EU jurisprudence makes clear that financial imperatives can only be an “incidental beneficial consequence” of an EU Member State’s gambling policy and not the real motive for the policy.

A policy which restricts fundamental freedoms under EU law must also limit gambling opportunities in a consistent and systematic manner. Should any regulatory change based on reducing problem gambling rates selectively target one channel, especially the online sector in general, this may well give rise to the argument that the policy is not addressing consumer protection concerns in a consistent or systematic manner.

In whatever regulatory environment, a black market will always remain. Players, as consumers, will seek out the best offers available, be they regulated or unregulated.

Black market competition is impossible to eradicate completely through enforcement measures such as ISP or payment processing blocking.

The best place for citizens to gamble is a well-regulated, competitive marketplace, as opposed to an alternative black market.

The use of bilateral agreements with regulators such as Malta, Gibraltar and the current “white listed” jurisdictions (as opposed to a dual regulatory system) may prove to be at least as effective a tool, and possibly better, in promoting compliance with their regulations which are already targeted at the stated public policy objectives of the proposals.

The UK’s position of trying to adopt a policy of “controlled closing” creates a unique set of circumstances that have not yet been considered by the European Commission.

The consequences of a retreat from the original free-trade principles of the EU treaties, recognised by the Gambling Act as enacted originally, are unknown and untested from a market, consumer and legal perspective.

With the UK as the largest online gambling market in Europe, great care will need to be taken to ensure not only the legality from an EU law perspective, but also the effectiveness in deterring an efficient market from clandestine offerings.


The highly competitive online environment means that operators would be unlikely to be able to pass a significant proportion of any POC tax through to consumers.

Given the very low returns that a significant proportion of operators currently earn, even relatively low levels of POC tax could force some of the smaller firms to exit the online gambling market.

International evidence from jurisdictions such as the US, France and Italy indicates that regulations in these jurisdictions have previously led to the emergence of a large unregulated sector. These examples highlight the potential for customers to switch between licensed and unlicensed sectors, and point towards some of the challenges that are involved in introducing effective measures to prevent this occurrence.

Consistent with this, modelling by Deloitte indicates that in the absence of effective enforcement procedures, a 5% POC tax could lead to as many as 13% of UK online gambling customers moving into the grey market. Up to 27% could move into the grey market at a 10% POC tax rate (at 15% it is 40%).

Such moves raise important questions over the impact of the POC tax on the over-arching consumer protection policy objectives.

Unless enforcement is effective, the growth of the grey market will also serve to reduce the scale of potential tax revenues. Moreover the economic modelling undertaken by Deloitte indicates that under a scenario with ineffective enforcement the tax raised could peak at a 10% rate, with further increases in the rate leading to declines in revenue as the black market attracts an increasing proportion of consumers.

Key implications of the Deloitte modelling

Effective enforcement of the tax and licensing regime are essential to maximising tax revenues and achieving customer protection objectives by limiting the size of the grey market.

The international examples indicate that enforcement is difficult and challenging, with no system being entirely effective and some regimes losing very significant shares of the market to unlicensed operators.

This suggests that the Government may wish to be cautious about the manner in which any such tax is introduced. In particular, it appears prudent to consider the introduction of any tax at a low rate initially in order to:

evaluate the actual impact on UK online gambling operators;

observe effects in markets such as Italy and France who are currently have reasonably high POC tax rates; and

develop effective enforcement mechanisms to limit the ability of grey market operators to target UK consumers.

We believe that there is now other research in existence which supports the Deloitte and Gambling Compliance findings.

EU Case Law

Whilst EU case law gives significant discretion to Member States to restrict gambling on relevant public policy grounds, restrictions nevertheless have to be objectively justifiable, necessary and proportionate.

As the UK has operated its current regime for remote gambling for over five years, we would have expected any objectively justifiable case to be based on real evidence of failure rather than theoretical and un-crystallised risk.

The GB case (excludes Northern Ireland for regulatory purposes) for a controlled market closure is completely different from the cases in most other European states where there has been a move away from state monopoly control of gambling to a more open licensing regime.

If the DCMS has clear evidence of significant failures in consumer protection or significant barriers being presented to the Gambling Commission during the investigation of betting integrity cases then we would have expected such to be articulated (at least in redacted form). In fact, during the 2012 Olympics, the Joint Assessment Unit (JAU) received a high level of voluntary co-operation from offshore operators in the efforts to protect the integrity of the Olympic Games.

Instead, the DCMS relies on obtuse references to “new and emerging European jurisdictions where little is known about the level of regulation and consumer protection” or on the idea that simply because UK consumers have to deal with a non-UK regulator that in some way they are disadvantaged. Consumers here face no different a challenge than they do in transacting other types of e-business and there is no evidence that UK consumers face a disorderly or unfair remote gambling market; just the opposite.

The fact that a complaint cannot be investigated by the UK Gambling Commission does not mean it cannot be dealt with properly by, for example, the Gibraltar regulator. Indeed, the Gibraltar regulator deals with consumer complaints directly whereas the UK Gambling Commission insists that they are dealt with by a third party.

Further contrasts with Gibraltar show that there are equivalent testing and technical controls in that jurisdiction and Gibraltar is extremely selective about who it licenses, with operators expected to uphold the good name of Gibraltar as a remote gambling jurisdiction as part of their licensing conditions.

It is clear that the UK Government realises that fundamental EU principles relating to establishment and free movement cannot be breached for tax purposes alone and, therefore, the case for a “controlled closing” of the UK remote gambling market has been based on dubious regulatory grounds.

There is no articulation of how the Gambling Commission expects to deal with conflicts between domestic law and the data protection laws of home jurisdictions, and there will still be a strong reliance on mutual assistance between regulators. Of most concern is the reference to a “light touch” regime and the failure to address issues of extra territorial enforcement and measures such as ISP or financial transaction blocking, however ineffective they have shown themselves to be elsewhere.

We do not believe that either the legislation or the operational processes within the UK Gambling Commission are fit for purpose in terms of the enforcement of advertising restrictions (particularly online advertising) and companies like William Hill face the prospect of uncontrolled competitive challenge from operators who choose to remain outside the regulatory and tax net, but still target the UK market. The experience of other jurisdictions shows that it is the competitiveness of the offering that is key for consumers. Where licensed operators can effectively compete in a market, consumers choose those operators over unlicensed offerings. The current market in the UK demonstrates this, and these distorting proposals are, in the Group’s opinion, likely to lead to more UK customers betting with unlicensed operators than currently.

The proposed legal framework, in its current ill conceived form, will lead to a strong and sustained legal challenge because the case is not made out for lawful implementation and the legislative proposals clearly have a disproportionate effect on the major UK gambling operators. Major operators like William Hill are competitively disadvantaged by the weakness of the legislation, which will do nothing to raise consumer protection levels and could completely backfire if the research is correct and some 40% of UK customers migrate to sites in less well regulated jurisdictions outside the EU.

In our view the policy is contrary to Articles 49 and 56 of the TFEU, the policy cannot be justified on the evidence presented in terms of an overriding public interest and this matter would fall within the jurisdiction of the TFEU.

Potential Solutions

Whilst we oppose this policy, we recognise that there may be more than one solution to the issues raised by Government or what the Group believes to be the true motive of the proposal, namely taxation.

Firstly, Gibraltar has been granted EEA status under the relevant legislation and with Gibraltar having special status as a British Overseas Territory and with equivalent Gambling legislation (and arguably tighter operational control in Gibraltar), it would be possible to allow the status quo to exist in that jurisdiction. There is no clear regulatory case for UK dual regulation of Gibraltar-based companies. There is also no reason why a white list cannot be maintained and enhanced.

Secondly, the Government could implement the overall regime at an online tax rate of say 5%. As has been shown in the case of Denmark, it may be an acceptable solution, in terms of European law, to have a separate rates of tax for gambling for the retail and online channels; justified by the need to incentivise compliance with the licensing regime and discourage illegal activity.

Gross profit margins are considerably tighter for online gambling businesses than for land-based ones and, whilst there is overlap, the online and retail gambling markets are not currently interchangeable. A lower rate of gambling tax for online businesses is entirely justifiable and would facilitate continued growth and innovation in the sector.

The market cannot sustain current levels of growth and a 15% rate of tax would slow growth more quickly and damage smaller businesses and the substantial technical, financial media (and other services) supply chain.

There is no significant social problem caused by remote gambling. Therefore, there is no justification for imposing a double figure rate of tax and using it as a regulatory brake.

The Government needs to strike the right balance between the efficacy of enforcement rates, the tax rate and the overall effect on a mature and competitive market. Current proposals do not achieve this balance.


We append to this submission the following documents:

Online Gambling Regulation—Striving for Sustainability, Player Protection and Competition (Gambling Compliance August 2011).

The impact of a point of consumption tax on the remote gambling industry (Deloitte December 2011).

Online Gambling Regulation—Restrictive Tools and Competitive Markets: The Latest Evidence (Gambling Compliance March 2012).

HM Treasury Tax Consultation Response.

Response to the DCMS consultation on the future regulation of remote gambling in Great Britain.

January 2013

1 Not printed.

Prepared 29th April 2013