Gambling

Written evidence submitted by Ladbrokes Plc (GA 64)

Summary

· Ladbrokes is grateful for this opportunity to engage with Government and take part in this consultation

· We believe that on the whole the Gambling Act was necessary for consolidating and updating legislation, and we agree with its core objectives, which have been largely useful and enforceable

· We do however retain some major concerns as to the ongoing impact of high taxation and regulation on UK-based businesses, coupled with the unlevel playing
field suffered by UK operators when competing against offshore companies

· The industry is of major importance to the UK economy, directly and indirectly contributing £6bn and employing 100,000 people. Ladbrokes itself employs 14,000 people across over 2,100 shops in the UK

· However the industry has been hit hard by tax increases (the VAT increase represented a £20m increase for the industry), making it impossible to compete with operators based in low-tax jurisdictions. This has led to several operators relocating from or closing facilities in the UK, which inevitably means job losses and lowered revenue for the Treasury

· The level of regulation on the industry also prevents businesses from responding to customer demand – particularly in the area of gaming machines and mobile betting and gaming – contrary to a key tenet of the 2002 White Paper from which the Gambling Act emerged

· In essence we believe that this industry requires greater protection from the UK Government and more consideration for the impact that decisions on tax and regulation have, not only upon the industry but also on the wider spectrum of "the high street", jobs, and Treasury revenue

· Ladbrokes is more than happy to provide spokespeople for examination at Select Committee

1. How effective has the Act been in its core objectives to:

· E nsure that gambling is maintained crime-free and condu cted in an open and fair manner?

· P rotect children and vulnerable people from the adverse effects of gambling?

· U pdate the legislative framework with regards to online gambling?

1.1. Ladbrokes supported the consensus view that the legislation around gambling had become out of date and inflexible and required an overhaul. In the words of the 2002 White Paper ‘A Safe Bet for Success’ "The legislation…has not enabled regulation to keep pace with either technological advances, or customer expectations and the ability and desire of the gambling industry to meet them."

1.2. Ladbrokes also supported the Act’s core objectives as a key element of enabling the industry to grow. In fact many of the Licence Codes of Practice had been voluntarily implemented by Ladbrokes years before the introduction of the Act.

1.3. The Gambling Act has been effective in providing a workable and enforceable framework and industry-wide regulator , and in ensuring that its core objectives have been met with regard to U K- based operators .

1.4. However, the provisions relating to online operators have failed to embrace the vast majority of online activity because of the significant tax advantages to operators locating offshore. A more level playing field, as discussed later in this document, would provide relief for UK-based bookmakers and long-term economic benefits for all.

1.5. While the vast majority of online gambling activity takes place with operators in well regulated jurisdictions like Gibraltar the Commission clearly does not have the resources to monitor regulation in all jurisdictions around the world. This could potentially put the consumer at risk from operators who do not comply with UK regulatory standards. Further, many operators who undertake significant levels of business with customers do not contribute to Responsible Gambling funds, placing an unfair burden on responsible UK operators.

1.6. Owing to the financial and regulatory burden within the UK, many UK-based operators have been forced to move their online operations offshore in an effort to r emain competitive. This includes Ladbrokes, which h as also been forced to close a call-centre in Aintree affecting 263 jobs, again primarily as a result of offshore competition. We have detailed the competitive disadvantages to UK operators below in section 2.2.

1.7. With regards to underage persons being within betting premises, we believe that Section 47 of the Gambling Act could be revised slightly. It currently states that an offence is committed once such a person enters the shop, without taking consideration for the length of time they are present or whether they were subsequently asked to leave. This is almost impossible for operators to enforce, without employing security on the door to physically prevent their entry. As such, statistics can be skewed to suggest a far lower rate of compliance than is actually the case. It would be far more logical for the offence to be failure to remove an underage person once they have entered the shop.

2. What has been the financial impact of the Act on the UK gambling industry?

2.1. The Hampton Review (April 2009) found conflicting views within the Gambling Commission with regard to its role in the economic regulation of the sector. The review highlighted the important economic role of the sector (contributing around £6bn to the UK economy) and recommended that a "key element of their activity will be to allow, or even encourage, economic progress and only to intervene when there is a clear case for protection".

2.2. The UK-based betting and gaming industry has a very high financial burden placed upon it, which puts businesses and jobs at risk. There has also been a high degree of uncertainty over potential changes to some areas of regulation such as gaming machines , which has had an impact upon the financial confidence of investors in the industry.

2.3. Ladbrokes profitability has severely declined during the period that the Gambling Act has been in place. In 2010 Ladbrokes’ profit was £202m compared to £252m in 2006, preceding the implementation of the Gambling Act. In 2009, prior to major cost-cutting (and also affected by the recession) the company’s profit was just £168m. This illustrates a dramatic drop which also impacts upon the company’s ability to invest, develop and create more jobs. Therefore, far from encouraging economic progress, all indications suggest that the high levels of taxation and regulation have impeded growth.

2.4. Operators in the UK pay 15% tax on their Gross Profits, 10.7 5 % horseracing levy on British horseracing bets and VAT on their input costs. The vast majority of offshore operators would pay a capped rate of tax , representing a significant tax advantage.

2.5. The ongoing issue of the Horse Racing Levy is significant to the industry. The Government has recently increased the Levy to 10.75% (in addition to lowering the threshold for smaller shops), meaning that the industry contributes over £75m per year directly to horse racing, in addition to the £95m in media rights and sponsorship (increased from £12m in 2002). This is a significant additional cost incurred by UK-based retail bookmakers which is not incurred by many offshore on-line bookmakers.

2.6. From a typical horse racing bet taken over the co unter, Ladbrokes makes less than twelve pence profit in every pound – the remainder being taxes, levies and other costs – and less than seventeen pence from every ten pound bet once margins are taken into account.

2.7. The cost of licenses per shop has also increased from around £150 plus a £25 renewal cost, to a potential £1,600 payment to the Gambling Commission, in addition to a £600 annual charge by the Local Authority.

2.8. Such an uneven playing field has led to many UK-based operators moving offshore, including Ladbrokes which also had to close its call-centre in Aintree, affecting 263 jobs.

2.9. Ladbrokes believes a level playing field should be created by extending UK regulation and Gross Profits Tax to offshore operators and betting exchanges, and providing relief to UK retail and online operators through a lower rate of GPT .

3. What has been the effectiveness of the Gambling Commission since its establishment, and does it represent good value for money?

3.1. The Gambling Commission had an understandably difficult job to regulate the betting and gaming industry and tackle its issues almost overnight, but given this it has performed adequately and effectively.

3.2. Bookmakers contribute license fees to the Gambling C ommission and Local Authorities . However, it must be reiterated that the financial pressures on the betting and gaming industry are very high and that increasing regulation and costs, whether through the Gambling Commission or other bodies, represent a threat to the industry and the jobs within it.

3.3. During the current economic climate , businesses would ideally look to make savings and would look to the Government to enable this. For example, a potential merger with the National Lottery Commission may lead to some efficiency savings which could be passed onto businesses, allowing them to protect jobs and continue to grow.

3.4. Whatever value for money the Gambling Commission has delivered to date, it seems likely that a merger with the National Lottery Commission would deliver synergies which would result in costs being saved. Some of those costs could be passed back to businesses to reduce their tax burden. The Government is doing this in other areas in these times of austerity, and we would urge them to extend such measures to the gambling arena, where businesses are under significant pressure.

3.5. Another area where potential savings could be made is in bringing age verification testing under the Primary Authority system. Ladbrokes, for example, has Primary Authority status with Liverpool City Council, which means its procedures and processes are subject to intense scrutiny by o ne A uthority, which then becomes responsible for dealing with issues arising in other A uthorities. We believe this system should allow for some efficiency savings regarding issues such as age verification testing, but currently this does not come under the Primary Authority system. The Better Regulation Executive is currently consulting as to whether age verification checking should come under the Primary Authority scheme.

4. What has been the impact of the proliferation of off-shore online gambling operators on the UK gambling sector and what effect the Act has had on this?

4.1. The proliferation of off-shore online gambling operators has had a serious negative impact upon the UK gambling sector and, while the vast majority of online customers transact with operators in well- regulated jurisdictions such as Gibraltar, there is a risk relating to some sites in some jurisdictions where the Gambling Commission does not have the resources to adequately check regulation is being applied.

4.2. The lack of competitiveness of UK-based operators which is the result of the relatively high financial burdens (including taxation, licensing, levies, responsible gambling funds) compared with the low costs of operating a gambling website from off-shore, has led to the closure or relocati on of several major facilities, leading to job losses and loss of revenue to the UK Treasury.

4.3. Whilst many jurisdictions , such as Gibraltar , are well regulated, the Gambling Commission does not have the resources to regulate all offshore online operators and as a result some that fall outside its jurisdiction are poorly regulated and may not strive to attain the same standards as UK-based firms. This has the potential to put vulnerable people at risk, as well as exposing consumers to the potent ial of crime and unfair betting, thus falling short of the Gambling Act’s core principles.

4.4. The Gambling Act has helped to provide a framework within which operators can work, but the high financial burden and regulation that parallels it pushes many operators outside of its remit, therefore making some aspects self-defeating.

4.5. A more level playing field would gain the UK Treasury increased income and allow the Government to use additional revenues to provide financial relief to UK-based bookmakers, particularly those that provide considerable employment and high-street footfall, enabling them to grow and flourish economically.

5. W hy has the Act not resulted in any new licences for casinos or "super" casinos?

5.1. Initially the announcement of the potential for such establishments within the UK was greeted with optimism by some of the betting and gaming industry, and produced significant constructive activity and investment amongst businesses, local authorities and other interest groups .

5.2. Ladbrokes initially invested in a London-based Casino, with the intention of bidding f or a regional or ‘super’ casino - a decision which created jobs and economic generation, whilst illustrating the pro-active response of business to the removal of barriers and the ‘opening up’ of the market.

5.3. However, the nature of the casino-bidding process, combined with a change of policy towards new casinos , made the continuation of this investment and activity impossible.

6. What is the effectiveness of the classification and regulation o f gaming machines under the Act?

6.1. The classification and regulation is largely effective but it is important to note that the class of gaming machines found within betting shops is relatively highly regulated compared with other forms of gambli ng , whilst the number of machines is arbitrarily limited.

6.2. The artificial restriction on machine numbers limits betting shops’ ability to grow.  Betting shop gaming machines are limited to four machines (B2 or B3 classification) regardless of the shop’s size, popularity or turnover.  Given the sizeable tax revenues generated by machines -   £118m per annum in VAT (the method of taxation on gaming machines) and £64m in license fees, the Treasury is missing out on significant amounts of revenue.   With these machines contributing around 40% of a shop s income, and   28% of betting shops making less than £17,500 profit per year, machines are an integral part of a betting shop business and have a major impact upon the security of shops and jobs. The decision to arbitrarily and artificially limit their number leaves bookmakers unable to respond to customer demand; and in some cases has led to an increased number of shops opening within a specific area in order to cater for customer demand , prompting complaints about their ‘proliferation’ .

6.3. We welcome the reviews of B3 Stake and Prize limits, recently conducted by the DCMS, but believe that betting shops should also have some extension of machine numbers, particularly now that Bingo and AGC's have had some liberalisation. We would encourage the DCMS to launch a consultation into Stakes, prizes and machine number limits within betting shops.

7. W hat impact has the Act has ha d on levels of problem gambling?

7.1. According to the 2010 British Gambling Prevalence Survey the rate of problem gambling has been on the margins of ‘statistical insignificance’ (also in 1999 pre-Act and 2007 post-Act) and is relatively low by international standards.

7.2. Bookmakers in the UK commit to working to support problem gambling education, treatment and research and through the GREaT Foundation donate money to leading charities in this area such as GamCare. This year Ladbrokes has contributed around £700,000 to the industry’s annual target of £6m for research, education and treatment of problem gambling issues. The vast majority of offshore operators do not contribute in the same way.

7.3. Support for those suffering from problem gambling is significant, with information displayed within all shops and online, self-limits and time-delays on machines, and behaviour logs and self-exclusion schemes offered. Staff in betting shops are also fully trained to recognise and deal with problem gambling behaviour.

7.4. It should be noted however that the availability of unregulated offshore betting and gaming websites does present a loophole for potential problem gamblers. For the Act to have significant impact upon problem gambling, it needs to find a way to compel such operators to comply with key areas of regulation before being able to interact with a UK-based consumer.

June 2011

Prepared 1st August 2011