Betting Tax (Horse Racing) (Hansard, 1 November 1995)

§ Mr. Richard Spring (Bury St. Edmunds)
I am most grateful to you, Mr. Deputy Speaker, for giving me the opportunity to introduce this Adjournment debate and I also thank my hon. Friend the Paymaster General for being here to reply.
The horse racing industry faced a real crisis over national value added tax differentials with the introduction of the single European market in January 1993, but the opportunity to owners to register for VAT threw a vital lifeline to the bloodstock industry. The entire horse racing industry, and my constituents in Newmarket in particular, was most grateful for that crucial concession from the Treasury.
Unfortunately, the national lottery's very success in the space of one year has produced fresh difficulties for racing. I remind my hon. Friend that, during the passage of the lottery legislation, a commitment was made that the actual impact of ticket sales would be monitored and reported to Parliament.
Together with the betting industry, racing employs some 100,000 people in Great Britain. The betting industry generates £4.5 billion in turnover and operates 9,300 betting shops. General betting duty produces some £355 million per annum for the Treasury. Although it is true that betting in real terms has declined over the best part of 30 years, clear evidence exists that it is now falling in absolute terms as well. Bluntly put, the long-term viability of racing is now imperilled. Unquestionably, the arrival of the national lottery and of scratchcards in particular has everything to do with it.
Betting duty produces an exceptionally good deal for the British taxpayer. Racing receives back just over £50 million from the betting levy and the tote. General betting duty stands at 7.75 per cent. If, however, one takes total turnover and subtracts prize moneys, one comes out with an effective tax rate of 34 per cent.; by comparison, for the national lottery, it is only 24 per cent.
That tax burden is manifestly unjust. It is threatening not only the profitability of the bookmaking industry but the crucial level of prize money available to competing race horses. It is also beginning to affect greyhound racing.
My hon. Friend will be aware of significant changes going on in the pattern of racing and of training. Although Britain can claim to be the historic centre of equine activity, new owners and new breeders are taking a much more global view. Some owners now winter their horses in sunnier climes—that would appear to be paying off handsomely. Race meetings outside Europe offer much larger prizes. It has become a cliché to talk of global markets and global communication, but it is happening in horse racing now.
The prize money available in Britain is looking even more increasingly paltry by international standards. Taking prize money per horse expressed as a percentage of keep and training costs, in Hong Kong it is 100 per cent., in Japan 92 per cent., in France 49 per cent., in the United States of America 47 per cent. and in Germany 43 per cent. In Britain, it is only 21 per cent. and looks set to diminish even from that low level.
276 So what, if anything, can be done by owners and breeders? Clearly, it is difficult to reduce the day-to-day costs of owning a race horse. If the risk-to-reward ratio is so poor, and so poor by international standards, it is unsurprising that up to 30 per cent. of owners leave racing each year.
I alluded to the increasingly international movement of race horses. In a three-year period up to 1994, the number of British-trained horses that successfully competed abroad rose by 75 per cent. For precisely the same reason, foreign-trained entries to British races fell by 30 per cent. The Horserace Betting Levy Board has said that, if the decline in betting activity continues because of the national lottery, it will cause a cut of £6 million from the 1995–96 levy scheme of £55 million. Clearly, the future projections of £57 million for 1996–97 and £59 million for 1997–98 look unattainable.
In other words, the lack of prize money will discourage new owners, and inevitably cause more British-trained horses to compete abroad and fewer foreign-trained competitors to come here. Sooner or later, that will begin to affect the fixture list. All that is disturbing for employment, tax generation and the industry in general, which is increasingly underfunded by any objective standards. Although underfunding has been a feature of racing for many years, it is now tipping into a chronic state of underfunding.
The Bookmakers Committee commissioned a report from the Henley centre which estimated that, this year, the reduction in betting turnover resulting from the introduction of the national lottery is fully 8 per cent. More and more national lottery terminals are being installed and a midweek game is planned. In those circumstances, some 15 per cent. of the 40,000 people employed in the betting office industry could lose their jobs and numerous shops could close, with the inevitable consequences of a decline in taxation income.
I should add that, at the time of the national lottery's introduction, a decision was made not to allow betting shops to offer betting on the national lottery—that is despite the experience in the Irish Republic. That at least would have softened the revenue loss blow. Equally, shops were not permitted to sell lottery tickets. Surely, there is now an opportunity to consider liberalisation.
That is an unnecessarily oppressive restriction on business. Camelot certainly no longer needs such protection. Such moves could restore turnover to off-course betting activity and would certainly be a deregulatory measure. I urge that contact be made between the Treasury and my right hon. Friend the Secretary of State for National Heritage; that could be the basis for at least a partial solution. That deregulatory measure would help the industry to compete on more equal terms. Nobody could have forecast the national lottery's tremendous popular appeal. However, it has a unique competitive edge on other forms of betting. Newspapers have also introduced scratchcards, thereby compounding the problems.
Simply put, a certain number of punters who might have had a flutter on the races are buying lottery tickets or scratchcards instead. I mentioned the redundancies and shop closures that have already begun. There are other clear signs: there has been a doubling of 277 cancellations by betting shops of satellite information services; equally, race sponsorships by bookmakers have been cancelled.
To sum up, we are caught in an unvirtuous circle: betting turnover diminishes, betting duty revenues fall, the prize money pool shrinks and, at every level, there is ultimately an employment impact. In the bookmaking industry, shops will close and employees get laid off. In the horse racing industry, the direct impact will be on jockeys, trainers and stable staff.
Of course, I welcome the arrival of the national lottery. I applaud its tremendous success and popular appeal. No other industry, however, is being more directly and clearly hit than horse racing. I have the honour of representing in the House the world's racing capital. I cannot be silent about the impact that the position I have described will have on many of my constituents and their livelihoods. Despite an admirable record of self-help in the industry, only the Government can practically resolve this problem.
How can that be achieved? Clearly, the level of betting duty must be reconsidered. I have already said that the effective tax burden on punters compares unfavourably with the national lottery. A cut in betting duty would give a considerable and essential boost to racing.
I need hardly mention that many of the jobs under threat are in rural areas where alternatives are hard to find. A cut in duty would stimulate betting turnover, although, in my view, it is vital that part of that cut finds its way via the levy directly into racing. I hope, therefore, that if my right hon. and learned Friend the Chancellor in his Budget decides to reduce betting duty, he will express his expectation that part of that reduction should go via the levy into racing. My right hon. and learned Friend could, of course, say that the reduction would be contingent on a suitable agreement to enable that to happen.
The racing industry is overwhelmingly financed by owners, at about three times the total levy and tote contribution. Without a reasonable spread of owners, especially new owners, the industry's financial liability will become impossible. We come back to the unvirtuous circle: diminished prize money reduces the desire of individuals to own race horses, fixture lists become smaller, attendances fall and revenues decline further.
Racing has an unassailable case for increased investment. The levy provides capital for upgrading facilities at race courses, not only for spectators but for jockeys and horses. Race courses need to be upgraded continuously to attract increasingly demanding race goers and to provide proper safety arrangements. By international standards, the integrity of British racing is extremely high, and this too requires money.
Other less obvious benefits flow from the proceeds of the levy. Breeders are rewarded for improving their bloodstock and equine veterinary research in Britain needs to be supported. It is probably the finest in Europe and we have been mercifully spared strains of illness that have cropped up elsewhere in the world. Of course, private capital finds its way into all those activities, hut, at the minimum, funds from the levy can 278 be used to complement those important endeavours. While prize money continues to remain at the heart of racing's financial problem, there are numerous ancillary activities and projects that provide the backdrop to race meetings themselves.
It is, of course, the race horse itself that is the linchpin of the industry. A decline in horses in training ripples out in negative ways which I have sought to describe. In a recession, people hold on to their possessions longer. With racing, the unfavourable prize money to cost ratio manifests itself in a current reluctance in Britain to purchase younger horses. Indeed, the number of horses in training is below both the peak 1989 level and even the level of 10 years ago, despite the undoubted attractiveness of VAT registration for owners and the growth in the number of horses in multiple ownership. Only 5 per cent. of new owners and only 7 per cent. of the more long-standing owners cover their costs.
I do not wish to give the impression that it is only owners who are beneficiaries of prize money. About a quarter of the pool is distributed among stable staff, jockeys and trainers. That, in turn, spills over to a whole spectrum of individuals, such as vets, insurers, farriers, feed merchants, transporters and saddlers. There is an extraordinary misconception about the true and substantial size of employment that racing helps to create.
At 7.75 per cent., general betting duty is punitive in a uniquely harsh way. The Select Committee on Home Affairs produced, in 1991, a yardstick that there should be the possibility for a race horse to cover its costs, of from £1,000 to £1,500 a month, if it won three races. At present, that is pie in the sky, and it has become even more clear since the inception of the national lottery.
An urgent cut in general betting duty of an appropriate size is required to restore the industry, at the minimum, to its pre-lottery state. My hon. Friend the Paymaster General has had specific representations and recommendations on that score. My own clear view is that any cut should be divided between the punter and, through the levy, racing.
Millions of people enjoy racing; it is part of our national heritage. Millions of people participate in the national lottery. The two are now inextricably linked, but to the great disadvantage of the former. Any fair-minded person would conclude that the high level of tax currently imposed on betting turnover is unreasonable. Racing can be stimulated and prize money increased only by a decisive reduction in the cost of betting. I ask my hon. Friend the Paymaster General to give the matter his fullest consideration in the lead-up to the Budget.

§ Sir Fergus Montgomery (Altrincham and Sale)
I praise my hon. Friend the Member for Bury St. Edmunds (Mr. Spring) for bringing this important subject to the House today. I declare an interest in that I am a consultant to the National Association of Bookmakers. I want to draw attention to the effect of the national lottery on the betting industry. The Government did, after all, do something for the football pools to help them with the problems that they encountered with the national lottery.
279 As my hon. Friend the Member for Bury St. Edmunds pointed out, betting duty is at present 7.75 per cent. of turnover. The bookmakers are asking for a reduction of 2 per cent. because they feel that, if they get that reduction, they can pass it on to the punter. That would be very helpful to the people who use betting shops and there would, therefore, be an increase in turnover. I realise that my hon. Friend the Paymaster General can say little today in the lead-up to the Budget, but I hope that he can assure us that such a reduction is being carefully considered.

§ Mr. William McKelvey (Kilmarnock and Loudoun)
I too congratulate the hon. Member for Bury St. Edmunds (Mr. Spring) on a first-class speech. He has obviously studied the issue and all the points he raised are ones that anyone who is interested in the betting industry would support.
I want to expand on the case for the greyhound industry which is also viewed by millions of punters and which provides thousands of jobs. I also declare an interest in that I own five greyhounds which run at Shawfield.

§ Ms Dawn Primarolo (Bristol, South)
And they never win.

§ Mr. McKelvey
They win regularly, but I am still poverty-stricken. Owners have a difficult task, as do trainers.
I now turn to the levy and the portion of it that is meant to go to greyhound racing. Unfortunately, it is a voluntary contribution and, although the big, respectable bookmakers have paid their share of the levy, a percentage of the others have not; there is always a shortfall. If any reduction in betting duty, which I support, is to find its way to the greyhound industry, there must be some mechanism by which the voluntary contribution is collected.
I know that the Paymaster General knows a great deal about this subject. Many of us have written to him and we shall go to see him next week. Although he is knowledgeable, we need to work out a technical way around the problem of voluntary contributions. If we do not, the shortfall will wreck the greyhound racing industry.

§ Mr. Robert G. Hughes (Harrow, West)
I congratulate my hon. Friend the Member for Bury St. Edmunds (Mr. Spring) on initiating this debate. I recognise that, this side of the Budget, my hon. Friend the Paymaster General cannot respond to points relating to the Budget. However, I simply make one point in echoing what has already been said.
We are all pretty tired of people saying, on fairly thin evidence, that the national lottery has hit either the money they raise or the business they run. It is clear to me from the evidence, however, that the betting industry, especially off-course betting shops, has been extremely hard hit because of the similarity of its business and the scratchcards. People make a direct choice to buy scratchcards rather than to go into a betting shop. Clearly, the industry needs help.
280 Whatever methodology of the revenue impact the Treasury accepts, I simply ask it to look at the methodology it has used before when it has believed that there would be a gentle decline in revenue or even an increase in revenue by leaving tax at existing levels. I refer of, course, to the withholding tax for American film stars, which was a disaster for the film industry and in terms of revenue.
There could be a rapid decline in revenue unless something is done. If such a decline happens, it will hit jobs across the country, particularly in Ladbroke Racing Ltd., which is a major employer in my constituency. I very much hope, therefore, that my hon. Friend the Minister will look at that point when considering the Budget later this month.

§ The Paymaster General (Mr. David Heathcoat-Amory)
My hon. Friend the Member for Bury St. Edmunds (Mr. Spring) introduced this debate with knowledge and eloquence. He has already become an effective advocate of horse racing and its associated industries. He will have been pleased, as I am, by the speeches of other hon. Members and the interest that they have shown in this debate.
I would be the first to acknowledge that horse racing is part of our sporting heritage. It adds excitement and colour to our national life. It is also, as my hon. Friend pointed out, a substantial employer and important as an industry.
My hon. Friend the Member for Bury St. Edmunds fairly mentioned that the Government have introduced several helpful measures in recent years, such as the opportunity for owners to register for VAT and thereby recover that tax. There have also been a number of separate deregulatory measures such as those enabling betting shops to open in the evenings and the advent of Sunday racing and betting.
There has also been a further relaxation of restrictions on betting shop facilities—resulting, for instance, in the opening up of betting shop frontages. More recently, my right hon. and learned Friend the Home Secretary has proposed that amusement machines should be allowed in betting shops. He hopes to put a draft order before the Deregulation Committee soon, with a view to the proposal being introduced and coming into effect next year.
Of course, some of those deregulatory measures have been somewhat two-edged in their effect, and I am aware that some bookmakers consider that, for instance, Sunday racing and the opening of betting shops on Sunday have led to higher overheads, which more than cancel out the corresponding increase in revenue and profit. But that must be a commercial decision for them. In general, we seek to remove restrictions unless they are justified.
My hon. Friend the Member for Bury St. Edmunds asked that betting be permitted on the national lottery. It is true that, under the law as it stands, bookmakers cannot accept bets on the lucky numbers. That is a matter not for the Treasury but for my right hon. Friend the Secretary of State for National Heritage. I hope that she will consider my hon. Friend's arguments carefully and I shall ensure that his remarks are drawn to the attention of Ministers in that Department.
281 The question of duty rates was central to the speech of my hon. Friend the Member for Bury St. Edmunds and was also brought up by other hon. Members. My hon. Friend referred to a study which claims that the very success of the national lottery has caused a marked switch of expenditure away from betting shops. That same point has been made to me in representations from the betting industry and the British Horseracing Board.
As the House will understand, with the Budget only a few weeks away, I cannot comment on what my right hon. and learned Friend the Chancellor of the Exchequer might say in his Budget speech. However, I can assure the House, hon. Members who have spoken and those who are listening that my right hon. and learned Friend and I will make decisions in the light of comments made today, and that all representations will be very carefully considered before the announcement on 28 November.