RATES OF GAMING DUTY

HC Deb 28 April 1998 vol 311 cc221-37

Mr. Michael Fallon (Sevenoaks)

I beg to move amendment No. 14, in page 5, line 33, leave out subsection (1) and insert—

'(1) In the Table in section 11(2) of the Finance Act 1997 (rates of gaming duty) the figures in the left-hand column under the heading "Part of gross gaming yield" shall be increased on 1 April each year in line with the increase in the retail index of prices over the previous twelve months.'.

The Second Deputy Chairman of Ways and Means (Mr. Michael Lord)

With this, it will be convenient to discuss amendment No. 15, in page 5, line 39, leave out '£1,500,000' and insert '£3,500,000'.

Mr. Fallon

We now turn to gaming. Perhaps it is appropriate, as the night draws on, that we turn to the tables. I would not suggest for a moment that you are an habitué of any other table than that at which you are presiding, Mr. Lord. However, you may not be aware, as the rest of the Committee may not be aware, that gaming is a big industry in Britain. There are 115 casinos in this country, 21 of which are in London. The industry employs 12,000 people, one third of whom are employed in London.

Gaming is not just a big industry, but a successful one that attracts overseas visitors and earnings to Britain. Gross overseas receipts last year were £879 million. The industry contributed £141 million to the public revenues in tax in 1996-97.

When we were in office, we recognised the success of the industry. In the latter part of our time in government, we did not propose the increases in duty contained in the clause to which our amendment is addressed. On the contrary, we proposed a programme of sensible deregulation. I declare an interest as an unpaid member of the Government's deregulation task force, which, from 1995, sought to make it easier for casinos to open in new areas and to modernise the industry, allowing advertising and making it easier for people to be members of casinos. Above all, we treated the industry with respect.

This Government have changed that. Without warning, they have slapped a £25 million increase on gaming duty. The industry calculates that the figure may be nearer to £30 million. I see the Paymaster General nodding. I am glad to see him confirm that the Government's figures may be wrong on that. By nodding, he has proved my point. The increase has been slapped on the industry arbitrarily.

For £3 million casinos, the increase in duty is 12 per cent. For £5 million to £12 million casinos, the increase is about 50 per cent. For £20 million casinos, the increase is 30 per cent. The top rate of duty has been upped by 40 per cent. There is no logic behind the progressive increases in duty. This is a dawn raid with a vengeance.

Mr. Gardiner

I stand to be corrected by the record, but I believe that the hon. Gentleman said that the duty was being upped by 40 per cent. I trust that he meant upped to 40 per cent. from the old rate of 33.33 per cent.

Mr. Fallon

Subsection (2) increases the top rate of duty to 40 per cent. I am talking about the various bands in subsection (1). The increases are varied and arbitrary, depending on the size of yield. The increase could be 12 per cent., 50 per cent., 30 per cent. or 40 per cent. In the middle bands, the increase is around 50 per cent. An arbitrary, illogical, irrational increase has been foisted on the industry.

The industry was not consulted. It was not informed or warned, and there was no discussion of the issue. I am doubly grateful that the Paymaster General is here this evening. When we were discussing corporation tax yesterday, he lectured us on the importance of consultation. He said:

I regret to tell him that the Opposition have to learn that the Government—as we will discuss later when we come to individual savings accounts and other matters—are prepared to consult, to listen and to change policy, as we have done. That is nothing of which we should be afraid or ashamed. We recommend that the Opposition learn from that."—[Ofcial Report, 27 April 1998; Vol. 311, c. 66.]

Mr. Robert Ainsworth (Lord Commissioner to the Treasury)

Hear, hear.

Mr. Fallon

The Whip says, "Hear, hear," but there was no consultation, no warning and no proper discussion with the industry on gaming duty before the tax was suddenly imposed. Indeed, it is suggested not only that the industry was not informed but that the Home Office, the industry's sponsoring Department, was not aware of the proposed increases until the Budget was announced. All that from a Government who claim to be pro-business. We read in our copies of the Evening Standard on Friday that there might be further tax cuts for business, but tonight we are debating a clause that imposes a tax increase on business. Casinos across the country were pole-axed on Budget day.

Just in case the Paymaster General or the Financial Secretary does not quite realise what he or she is doing, I shall lay out for them the effect on the two biggest operators in London. There are 21 casinos in London, and 10 of those are controlled by only two groups: London Clubs International and the Capital Corporation. Within days of the Budget announcement, 30 per cent. of the value of their share prices was wiped out. That was the effect of this arbitrary, irrational, cack-handed attempt to grab more revenue from the casino industry.

I do not want to hear any excuse from Government Front Benchers in response to our amendments, or any suggestion that duties may be higher elsewhere in Europe—they may be higher. Other casinos in Europe—perhaps the Paymaster General knows some of them—have fewer invigilators, and pay their staff in tips rather than salaries.

On amendment No. 14, I do not want to hear the Financial Secretary say—if I can have her attention—that we did not index gaming duty. We did not have to. We understood the industry; indeed, we were proposing a programme of deregulation to help it. We were not in the business of suddenly slamming on a 40 per cent. increase in gaming duty.

The amendments offer the Financial Secretary a way out. Amendment No. 15 would reverse one of the most damaging increases. Amendment No. 14 would index duties for ever. At least then the industry would know where it stood. It would be protected from dawn raids in future; it would not suddenly face an arbitrary increase. [Interruption.] I am surprised that Ministers find the matter funny when 12,000 jobs are at stake. Amendment No. 14 would index increases so that there could be no temptation for Ministers suddenly to impose quite savage, arbitrary and ill-thought-out increases in duty.

Apart from those two suggestions out, there are plenty of other ways out of the impasse. I understand that various talks are going on between the industry and officials, who now accept the ill-thought-out nature of the Financial Secretary's proposals. The other ways out include phasing the various increases—if she really insists on them—over three years. It is not often that an industry that is suddenly taxed by a so-called business-friendly Government sees 30 per cent. of its value wiped out on the stock exchange. There is a case for phasing the increases over three years. Perhaps the Financial Secretary will admit that the various banding increases have not been worked through properly. She might be prepared at least to look at the way in which the increases impact.

In the end, it is up to the Financial Secretary. She must decide how to justify inflicting such increases on one of our most successful British businesses. If she does not, the industry will know that similar increases may be levied each consecutive year. The industry attracts a considerable amount of overseas earnings, which could quite easily pass over to Amsterdam, Frankfurt or any of the European capitals with which the Paymaster General is so familiar. If the Financial Secretary does not listen, it will be clear that she is not prepared to defend this industry, and that she regards it as some kind of milch cow for future tax revenue.

Amendment No. 14 gives some protection and puts the industry beyond the grasp of the Financial Secretary. It will ensure that future duty increases are only ever linked to the annual rate of inflation. That kind of safeguard was not necessary during our term of office, but it is certainly necessary now.

9.15 pm

Sir Teddy Taylor (Rochford and Southend, East)

We have just discussed a series of measures to give the Government more cash from taxing alcohol, hydrocarbon oil, tobacco and other items. The Government will receive a great deal of extra cash, which I hope they spend wisely. I hope, in this case, that the Financial Secretary will agree to have a second look. I want to persuade her that the proposal is irrational and unfair, and will seriously affect jobs.

In my constituency, leisure and recreation are major employers. The Financial Secretary will know that we have quite high unemployment—about 9 per cent. When we try to encourage the sea-front to do better and to invest some money, it makes a big difference. We have received investment recently which we hope will help but, in general, the problems with employment in seaside towns are serious.

I have two casinos in my constituency, located at the Westcliff sporting club. I should like the Financial Secretary to think about some figures which have been sent to the Chancellor of the Exchequer. The club's duty for last year was £563,000. The club has calculated what it would pay under the new proposals; it says the figure would be £876,000, an increase of 56 per cent. These figures are either right or wrong, but on the basis of my discussions with people at the club, I think they will be right.

Mr. Fallon

It sounds as if the casino in my hon. Friend's constituency is a middle-ranking casino in terms of income, and he is describing an increase of more than 50 per cent.—the information provided to the House of Commons. I can assure him that that sounds right. Middle-ranking casinos in the capital or the provinces are facing increases of more than 50 per cent.

Sir Teddy Taylor

My hon. Friend is absolutely right. The way in which the tax will apply will not impose a straight increase of a certain amount, but one which varies from place to place. In Southend, we have one of those middle casinos. I have never had the opportunity of playing in it, but I have seen around it. Those in charge appear to be good employers who appear to run a good business.

In a seaside town—where things can be tough and where unemployment tends to be high—it seems irrational to impose the increase. In London clubs—where exciting people come from overseas countries, and where they appear to be wealthy—one might see that there is an opportunity to get more tax. It seems rather unfair on an organisation that has spent an enormous amount on investment and is a major employer in our area.

The second point that I hope the Financial Secretary will bear in mind is that, in taxing alcohol and cigarettes, the increase can be passed on to the customers. There is simply no way in which casinos can do that. It might be possible in the long term for the club to put up the amount one pays to become a member, but even that amount will be limited.

Thirdly, the Financial Secretary should be aware that the company is a substantial employer. The Westcliff sporting club provides an academy which trains 150 persons a year. It has had little co-operation from the authorities in providing what it regards as a major public service. It also pays a substantial amount in value added tax; as you know, Mr. Lord, casinos have to pay VAT even on bad debts, which are not recorded.

I appreciate that there have always been some doubts in the House of Commons about the validity of casinos. Some people think that, like smoking, casinos are a bad thing which should be banned. Of course, they have a perfectly good case. Others think that casinos should be encouraged. However, as we have these activities, it seems desperately unfair to impose massive sudden tax increases and to apply them in such a way that particular casinos in particular areas are hit particularly hard. Such a massive increase is unfair on Southend-on-Sea. We are already very restrictive in the case of casinos. For example, unlike other industries, we do not allow them to advertise. As the Financial Secretary is also aware, this tax is not on profits, but on gain before costs.

I appreciate that Governments who want to get a lot of money sometimes look around for obvious targets—the sort of thing about which people might not complain—but the basic question is: is the Financial Secretary confident that this extra money can be secured without jobs being destroyed, without some casinos having to close and without some reduction in the industry?

If the industry is simply a sitting duck with lots and lots of money everywhere, one can appreciate that the Government may have a case, but I have a feeling that they have gone too strong on this one and that they have introduced it in such a way that it is particularly unfair to particular places. Of course, I feel very upset that Southend seems to be hit harder than other areas. I hope that the Financial Secretary will examine that.

What can the Financial Secretary do? I appreciate that, in such debates, it is unusual for Ministers to say that they are going to overturn their decisions and change the Budget. However, I hope that she will say that she will examine the impact of the tax as it applies to particular areas, or at least that she has open mind on how the measure might be applied. Changes can be made if things are unfair.

I appreciate that, like all Governments—goodness knows, I had plenty of arguments with the previous one—the Government do some bad and some good things, and sometimes make mistakes because they are under a lot of pressure. I feel that, in this case, a mistake has been made. Unfairness has been introduced and I therefore hope that the Financial Secretary will say that she will reconsider the matter and at least keep an open mind on what is a serious issue for the people of Southend-on-Sea.

Mr. Edward Davey

Until earlier today, my personal knowledge of the casino industry was, to say the least, limited. I am not someone who is taken with gambling. I may be the only hon. Member who has yet to buy a national lottery ticket. That is not, I hasten to add, because I have something against gambling; I do not wish gambling to be banned. It is more because, as a modern economic man, I take my decisions on a rational basis, and it is clearly irrational to gamble. It is only justified as a consumption good. Some people like the experience of gambling and want to spend money on it. That is fine for them, but I choose not to.

There are concerns when gambling becomes an addiction; that is why this and past Governments have sought to regulate the gambling industry. However, in this measure, the Government are not showing particular social concerns. People who use casinos, particularly London casinos, are international gamblers who cross the globe to gamble. I do not think that the Government's aim is to help those people with their gambling problem. It is clear that the Government want to raise revenue; that is the main point of the measure. However, they are going about it in the wrong way.

As other hon. Members have said, this is a large increase in a very short time. That is a bad way in which to introduce any new tax and, for the casino industry, it is particularly bad. It will affect a small number of businesses very severely immediately. As the hon. Member for Rochford and Southend, East (Sir T. Taylor) has said, it will result in people losing their jobs. That will happen not just in constituencies such as his and those of my right hon. and hon. Friends who have coastal constituencies where there are casinos for tourists, but in London. I have constituents who work in the casinos in central London, and they are concerned that the tax may lead to their losing their jobs.

As the hon. Member for Rochford and Southend, East said, it is difficult for the tax to be passed on. I have had to refer to other sources to understand that, because tax increases can often be passed on to the consumer. Apparently, the edge that the house has over the player is laid down by law, ranging from between 0.6 and 5.6 per cent. in blackjack to between 1.5 and 5.6 per cent. in dice, so the tax cannot be passed on. To recoup their investment, the business owners will have to make efficiencies elsewhere. Their main costs are staff and property, so staff will be made redundant. That causes a problem for the underlying commercial health of casinos, because it is important for the industry to have in-built inefficiencies. To attract people into the casinos in one capital city rather than another, they have to have subsidised food and lots of people pandering to the punters' every need. Laying off staff may undermine casinos' long-term health.

The other danger is that gambling could be driven underground. The Gaming Act 1968 was supposed to prevent mafia-type underground gambling operations, with all their appalling implications. I am sure that the Government are not trying to push gambling back that way, but such a huge increase in so short a time could lead in that direction.

The Government are in danger of killing the goose that lays the egg. Revenues may decrease in the medium term, as casinos close or high-income gambling operations go out of the regulated sector.

We shall oppose the Government and support the amendment. I am sure that the Government will defeat the Opposition's combined efforts, so I shall propose an alternative that they should grasp, in the form of the improvements in the regulatory regime to which the hon. Member for Sevenoaks (Mr. Fallon) alluded.

In the dying days of the previous Government, the Home Office published some sensible proposals in a document, "Second Consultation on Casino Deregulation", which would have been implemented in the unhappy event of the Conservatives being re-elected. The proposals would have made it easier for people to apply for membership of a casino on the night or by post, and enabled casinos to market their services in a limited way. There are huge restrictions on what casinos can and cannot advertise, and the proposal was for very minor deregulation. The consultation process revealed little opposition to that, and I believe that it should be pressed ahead with.

The casino industry and the previous Government supported other minor deregulatory measures, such as allowing up to three slot machines per table in casinos and extending the "permitted areas" in which casinos can operate. They were minor deregulations, but they would have significantly helped the industry. In response to the paper, the Gaming Board re-emphasised to the previous Government that those changes were likely to lead to a substantially enlarged industry. So my point to the Minister is that, if the Government intend to tax the casino industry in this way—as they are likely to do come the 10 o'clock Division—they should reconsider the consultation paper and those deregulatory proposals.

I do not think that an enlarged casino industry would cause any major social problems. There are many other aspects of the gaming industry in which those problems could be looked at. The deregulatory proposals would enable the casino industry to take the effect of higher taxes in its stride and still grow and meet the extra impost that the Government seek to levy tonight. That would mean that the scenario that I have painted would not occur, and that the revenues of the Government would not fall in the medium term.

9.30 pm

Amendment No. 21 in my name and that of my hon. Friends was tabled not in relation to casinos but to flag up to Ministers the fact that the extra duty on amusement machines in clause 12 will cause great problems to working men's clubs and non-profit-making organisations. We want to flag that up before the Bill goes into Committee Upstairs because we want the Government to pay attention to it. We do not intend to move the amendment tonight, but we want the Government to take cognisance of our concerns about that clause. We hope that the Government can put to the Committee some alternative proposals.

We intend to oppose the Government tonight. The extent of this latest tax increase and the speed at which the Government are proceeding with it almost beggars belief. It is a massive increase in a very short time. The only way in which the Government can ensure that it does not damage the casino industry in the immediate future, let alone the medium term, is to come to the House at the earliest opportunity with some significant deregulatory proposals.

Mr. Andrew Lansley (South Cambridgeshire)

I am grateful for the opportunity to speak in this brief but none the less useful and important debate on the impact of clause 11 on the casino industry. Those who have listened to the debate or who come to read it in days ahead may regard us as a remarkably abstemious crew. I share the position of the hon. Member for Kingston upon Thames—am I right?

Mr. Davey

And Surbiton.

Mr. Lansley

I beg the hon. Gentleman's pardon. I had the right part of the world, but not the right constituency. The hon. Member for Surbiton.

Mr. Davey

Kingston and Surbiton.

Mr. Lansley

I doubly beg the hon. Gentleman's pardon. I have been wrong twice. I shall go for a third time in a minute.

The hon. Gentleman said that he had not bet in a casino, indeed not bet anywhere. I have to say that I am not so abstemious. I buy a national lottery ticket from time to time. I recall that, in the debate on the National Lottery Bill, plenty of Labour Members said that they did not buy a lottery ticket but were happy to spend the proceeds in diverse ways. I suspect that, similarly, the Government are perfectly happy, whether or not they are players in casinos, to tax them and spend the money.

I declare a former interest, in the sense that, in a previous employment, I had occasion to advise Ladbrokes and the Betting Offices Licensees Association. In that context, I wrote a short pamphlet on the regulation of the gaming industry—the betting and gaming industry, I should say, lest I offend it—which meant that, for that short moment, I understood something of the industry. As you may be aware, Mr. Lord, the trouble with debates in the House of Commons is that it is not at the moment that one understands something that one is invited to comment on it. I have had to relearn some of the things that I once understood about the casino industry.

The change from 33.33 to 40 per cent. in the top rate of duty seems steep on first impression, but it is only when one begins to put it alongside the change in the bandings that one begins to realise what the overall impact is. The hon. Member for Brent, North (Mr. Gardiner)—I am pleased that he is in his place—may have the chance to help me, because I am not competent, least of all without a calculator, to work out the effective increases in the average rate of duty caused by the change in banding combined with the change of the top rate for given levels of gross gaming yield in casinos.

The exchange between my hon. Friends the Members for Rochford and Southend, East (Sir T. Taylor) and for Sevenoaks (Mr. Fallon) made it clear that the effective increase is quite steep, even for middle-range casinos, but more significant is the impact on the marginal rate. Under the changed banding structure, a modest gross gaming yield of £2 million in the half year might lead to a marginal rate of duty of 25 per cent. as opposed to 12.5 per cent.

At the margin, tax often acts on incentives, and its impact on cash flow affects the viability of the business. The hon. Member for Kingston and Surbiton (Mr. Davey) was right to mention the inability to pass on to players the costs of such a tax; they will come straight off the bottom line, so it was not surprising that the share price reacted in such an alarming fashion. My hon. Friend the Member for Sevenoaks was right to draw attention to that. I hope that Ministers were also alarmed and that they did not foresee the consequences. If they foresaw them, they should have reconsidered the impact of the measure.

We should also consider the scale of the measure. The previous top rate of duty—33.33 per cent.—would have applied at £5.4 million of gross gaming yield in the half year. The new figure of £2.9 million is a little over half the previous level. The two changes have perniciously been introduced together. It would have been better to leave the banding structure in place and to apply more straightforwardly the duty that the Government think is required to raise additional revenue, if it was indeed necessary to raise it.

For casinos, the duty is not a tax paid in isolation and instead of other tax; it is paid in addition to VAT, corporation tax and modest licence fees. From the British Casino Association survey of the third quarter of 1997, I derived the figure of £141 million, so the industry pays a handsome sum to the Exchequer before the Exchequer has its further pound of flesh.

I take account of what my hon. Friend the Member for Rochford and Southend, East said, but the burden of my argument is that the impact of the measure is disproportionately skewed towards London casinos and larger casinos. Duty was previously paid in proportion, 15 per cent. by provincial casinos and 85 per cent. by London casinos. The duty increment proposed by the Government will be paid 3 per cent. by provincial casinos and 97 per cent. by London casinos.

There are two points of significance in that. First, the Government thought that they were aiming at a soft target and that the additional charge would be levied on London casinos with overseas players or players who are UK-based, but not UK nationals—people who do not form a political constituency. Secondly—the consequence that the Committee should find worrying—is that, in so far as the duty is levied on London casinos, the impact falls disproportionately on overseas players who bring substantial earnings to this country.

I approach the subject not as one who is principally interested in the structure of the betting and gaming industry, although I have an interest in that, but as one who is concerned about trade and industry matters. In the trade context, it is extraordinary that, at the moment when sterling is high and it is difficult for casinos, the tourist industry and London to maintain their attractiveness to those who have to change their money to sterling to spend it in this country, the Government think it right and appropriate to impose swingeing increases that damage the relative competitiveness of the London casinos—which are important contributors to our overseas earnings—and have a particular impact on certain groups of individuals of high net worth who operate in an internationally mobile environment.

Is it any wonder that we have seen press reports—I have no knowledge as to whether they are well founded—that speculate about London clubs decamping to Las Vegas for their headquarters and operations? That would be entirely retrograde. When discussing the London casinos, we are speaking not only about significant benefits in terms of overseas earnings but about individuals who, while in London, are likely to be significant contributors to earnings of foreign exchange via hotel accommodation, investment and consumption expenditure.

My hon. Friend the Member for Sevenoaks referred to the overseas earnings figures, which are impressive: £880 million overseas source receipts in 1997, of which the London casinos—those that benefit most substantially from overseas visitors—took in £160 million. It is worth noting that, if the United Kingdom's casinos were rendered into one company rather than one industry, their overseas earnings would put them into the top 100 exporting companies in this country. That is a measure of their value. I see the Paymaster General is interested in this point.

Mr. Fallon

He likes big numbers.

Mr. Lansley

Then perhaps he will be interested in these numbers: not only would those earnings put the casinos into the league of the top 100 exporting companies, but they employ a larger number of employees—11,720 in the most recent survey I have read—than, for example, Vauxhall Motors. I know that the Paymaster General has taken a close personal interest in the future of Vauxhall at Luton, so it would be retrograde were he not to take an equally close interest in the financial and competitive health of this country's casino industry, which, like the motor manufacturing industry, is a direct contributor to our overseas earnings.

There is a tendency to talk about the importance of manufacturing, but I learned from Keith Joseph at the Department of Trade and Industry that what we really need to focus on is the internationally tradeable sector. Because of its revenue earnings from overseas sources, the casino industry in this country is a significant internationally tradeable sector, on which the measure that the Government are proposing could have a significant and damaging impact.

The measure has three retrograde aspects. It is on the wrong scale at the wrong time for an industry that makes a significant contribution to our balance of payments. Only this morning, I was hearing about the record monthly level of adverse balance of payments running on our current account, but the measure we are discussing will do nothing to help in that respect. However, the measure is focused on the London casinos and their appeal to an overseas and internationally mobile group of people—the, from memory, about 220,000 overseas members of London casinos. No doubt those people make a substantial but unquantified further contribution to our overseas earnings and to the tourism and other earnings of the United Kingdom economy.

As my hon. Friend the Member for Sevenoaks forcefully and rightly argued, the measure was proceeded with without consultation with the industry—potentially, I suspect, without the Treasury's adequate foreknowledge of its implications, and perhaps even without proper consultation with Government about its likely impact and whether it was desirable in industry terms.

The industry will be right to look to the Committee to ameliorate the measure. Amendments Nos. 14 and 15 would help to do so, especially No. 15, which proposes a change in the banding structure. With justification, the industry would look to the Government to take account of the obvious and severe adverse impact of the measure, and would look for transitional provisions—not least because of the present high level of sterling. It will hope that the Government will, this time, listen to the debate and propose, at a later stage, some measures of their own to relieve the adverse impact. I support the amendment.

9.45 pm

Mr. Gardiner

Ornipathology has never been my strong point, but when the hon. Member for Kingston and Surbiton (Mr. Davey) complained about the death of the goose that laid the egg, my heart did not bleed. Anxiety has been expressed in Committee tonight about the way in which the proposals may affect employees in the industry. I have received from my constituents—whom I have told that I would raise the issue tonight—letters addressed to "Dear … ", saying:

I am writing in connection with the serious threat posed to the London casino industry and particularly to my employer"— I shall not name the employer, for fear of encouraging more high rollers to visit the establishment—

by the proposed increases in gaming duty announced in the Chancellor's recent budget. These proposals have serious implications for jobs within the casino industry in London.

Those were the cyclostyled letters that I received. Let us now examine how serious the implications are for jobs in the casino industry in London.

We heard from the hon. Member for South Cambridgeshire (Mr. Lansley), correctly, that 3 per cent. of the effect of the measure would apply to provisional casinos—

Mr. Lansley

Provincial.

Mr. Gardiner

I am sorry. We have heard that 3 per cent. of the effect would apply to provincial casinos and 90 per cent. to the London casinos. I believe that that effectively deals with the intervention by the hon. Member for Eastbourne, showing that the bulk of the measure is aimed at London casinos.

Sir Teddy Taylor

First, I am not the MP for Eastbourne. Apart from that, the proposed increase would require casinos in my constituency to pay more than an extra £300,000 in duty, which is a lot of money and amounts to an increase of 56 per cent. It cannot be said, therefore, that the increase does not matter; it matters a great deal to the medium casinos.

Mr. Gardiner

The facts are clear. A 2.5 per cent. tax rate is being levied on the casino's gross gaming yield— its gross profit—up to £400,000. In the middle bracket, which we are discussing, we are talking about between £400,000 and £2.9 million. That is the gross profit that those organisations are making.

Mr. Lansley

Will the hon. Gentleman give way?

Mr. Gardiner

I am afraid that I must press on because of time. In usual circumstances I would give way, but I think the hon. Gentleman will agree that we must keep our comments short before a 10 o'clock closure.

Mr. Lansley

There is no closure.

Mr. Gardiner

I will press on.

On the impact that these measures are likely to have on jobs in the industry, I cannot conceive that the additional levies will be passed on to employees, the cost of whom is minute in comparison with the profits that these companies make.

The hon. Member for South Cambridgeshire referred to problems that might arise with the balance of payments and his concerns about overseas earnings. He said that he did not want to deter the high rollers from coming to London and frequenting London casinos. As the hon. Member for Kingston and Surbiton pointed out in his arguments about the edge that must be applied, those costs will not be transmitted to the high rollers because they are limited by the edge that the casinos are allowed, by law, to charge.

Mr. Lansley

The hon. Gentleman referred to gross gaming profit, but he will realise that it is in fact gross gaming yield. I argued not that the players—"high rollers" is a pejorative term—will be deterred by a change in the edge, but that the casinos might have to contemplate the relative competitiveness of operating in London compared with other locations.

Mr. Gardiner

That is a spurious argument. London is an international centre, and any major casino that can locate here will want do so in order to get its market share in situ. London will not suddenly be denuded of casinos as a result of this measure.

Mr. Fallon

The hon. Gentleman represents a London constituency. Is he seriously defending a sudden increase—introduced without warning—of 40 per cent. on the duty that top London casinos will bear? How can he, as a London Member, say that casinos in London will be unaffected and will sail on, competing on an equal footing with casinos in Amsterdam or Frankfurt, while bearing an unexpected increase of that kind?

Mr. Gardiner

I want to nail the statement that the hon. Gentleman has now made twice in the Chamber. He has claimed that there is an increase of 40 per cent. I am sorry, but the duty will increase from 33.33 per cent. for the top rate to 40 per cent. According to my mathematics, that makes an increase of 6.7 per cent. It is important to appreciate that the top band will increase by only 6.7 per cent. It is spurious to claim that there is an increase of 40 per cent.

There is a change in the banding, which will certainly impact on the revenue collected by the Exchequer. However, that puts an obligation on Her Majesty's Opposition to state where they propose to get the additional £25 million in revenue which this measure would raise. There is no question of it damaging jobs in the industry or of casinos leaving London. There is no question either that the Opposition will be extremely hard pressed to state from where that £25 million should come.

Dawn Primarolo

I am amused by the image that the hon. Member for Sevenoaks (Mr. Fallon) has of my hon. Friend the Paymaster General. He apparently believes that my hon. Friend possesses some qualities that I do not and that I do not know enough about casinos and have never visited any. Presumably, the hon. Gentleman believes that I do not have a playgirl image—although he felt able to make a pun about the fact that my first name is Dawn. I suppose that, in some respects, that reveals his perception of these matters—which seems rather shallow.

The hon. Gentleman advanced the case that the previous Government were benign to the casino industry because it was important to the economy. Yet they kicked manufacturing industry all around the room in terms of their support for it.

The proposal is not ill thought out. I shall deal with the amendment and with the Government's intentions. If the amendment was designed to encourage the Government to reconsider the proposal, the rather ungenerous tone in which the hon. Gentleman advanced his case would lead me to suggest to the industry that it should look for another spokesperson in the House, who concentrates more on the industry's case and less on scoring political points against the Government. The hon. Member for Rochford and Southend, East (Sir T. Taylor) advanced that case and described the difficulties that he foresaw.

The previous Government did not consult on every tax rise. For various reasons, the Chancellor does not usually consult on changes to duty rates. For example, consultation may not be undertaken on measures that could lead to a temporary distortion in market behaviour. Clearly, the City did react to the increase in gaming duty, and consultation before the Budget may have exacerbated the problem. The Opposition's point about consultation is therefore spurious.

Mr. Fallon

I pointed out that 30 per cent. of the value of two companies quoted on the stock exchange was wiped away within days of the announcement. Does the hon. Lady accept that it might have been better to consult, at least on the detail of what she was proposing?

Dawn Primarolo

The hon. Gentleman's Government did not consult on putting VAT on fuel. Indeed, they promised not to do so, and then they did it. Now the Opposition have the cheek to say that this Government do not engage in proper consultation.

Some serious points were made in the debate, and I shall reply to those. That is how the Committee would expect us to respond. The argument covered four categories: the phasing of the introduction of the increase; bad debt; indexation; and the structure of the bands that are being introduced, to which the hon. Member for Rochford and Southend, East referred particularly. He argued that the burden of the increase falls less on the profitable casinos and more on those in the middle band.

Reducing the bands would not result in casinos other than the top, most profitable clubs paying increased amounts of duty. The Government's proposal is deliberately designed to spread the burden of the tax, attaching it to those casinos most able to bear it. It is the Government's opinion that the industry pays an unfair level of tax: it could pay additional tax. The industry's response has not been to dispute whether it could afford to pay the increase or whether it should pay it, but to argue about the distribution of the tax.

We reject amendment No. 14. as we do not believe that it provides the way forward. Moreover, it is technically flawed. Our solicitors advise us that it is not possible to amend the Bill in a way that commits the Government to the indexation of duty bands. The table in section 11(2) of the Finance Act 1997 would need to be amended with the updated figures on each occasion that the bands were indexed, and on each occasion a clause would be required specifying when the changes came into effect.

Let me deal first with the changes to the gaming duty bands and the top rate of gaming duty. The House will wish to know that the casino industry is under-taxed compared with most other betting and gaming sectors. However, there is little scope for increasing the duty burden on smaller, less profitable casinos.

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There is every indication that the casino industry is thriving and can afford to pay the increased duty. Receipts of gaming duty are up on previous years, and the drop—the amount staked at a casino—has increased, particularly in larger, more profitable casinos. In the 12 months to December 1997—the most recent figures we have—the drop in larger, more profitable casinos increased by around 8 per cent. over the previous 12 months, and the gross gaming yield increased by around 10 per cent. That demonstrates the industry's ability to pay more tax.

Secondly, I am aware of the industry's representations on indexation, and I am persuaded that there is a case for creating an environment that allows the industry and its investors a reasonable level of certainty in which to operate and plan. Therefore, I am prepared to give a commitment to index the gaming duty bands for the remainder of this Parliament.

That said, I should make it clear that, if the business climate in which the casinos operate were to change significantly—through further deregulation, for example—we would not rule out the possibility of further restructuring the duty in future, to ensure that the level of taxation remained fair. Subject to that proviso, I accept the principle of indexation for the lifetime of this Parliament. However, the amendment proposed by the Opposition is unacceptable, in that it attempts to nullify the changes to the duty bands and rates, and is technically flawed by the way in which it deals with indexation.

I now turn to the restructuring of the bands proposed in amendment No. 15. I am not persuaded by the argument that the amendment would reduce the liability of London casinos as the proposed changes would significantly reduce the revenue that we intend to collect from the casino industry. It is quite clear to the Government that the industry can afford to pay the additional duty.

I am aware of the trade representations concerning the structure of the duty bands, in particular the impact of the Budget changes on some of the less profitable London clubs—those with gross gaming yields of between £5 million and £12 million—and the points that the hon. Member for Rochford and Southend, East made about his experience in Southend.

I shall continue to ensure that the forecast revenue yield on the measure is maintained, but as a member of a Government who are prepared to consult and listen, I am prepared to consider the industry's proposals on the best way forward in respect of the structure of the bands. As has already been said, my officials continue to discuss the issue with representatives of the industry. I shall report back to the House with my findings.

The amendments are unnecessary and defective, and do not represent the best interests of the taxpayer in ensuring that the Government receive a fair tax yield from the casino industry. As I have said on a number of occasions, the industry is under-taxed compared with most other betting and gaming sectors, and we believe that it can afford and should pay the proposed increase in the name of fair taxation. Therefore, I ask the Committee to reject amendments Nos. 14 and 15, and support the Government in the clause. I hope that my comments tonight, particularly on indexation and restructuring the bands, will be helpful to the Committee.

Mr. Fallon

This has been one of the most rewarding debates that we have so far enjoyed in Committee and, perhaps, in this Parliament. I thank my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) for drawing the Committee's particular attention to the plight of provincial casinos. That has been well highlighted tonight, and I am sure that the Government are now aware of the impact of what they propose, which does not fall entirely disproportionately on London but, as my hon. Friend so skilfully pointed out, also impacts on some of the provincial casinos.

I thank the hon. Member for Kingston and Surbiton (Mr. Davey) for his support for the amendment. He well illustrated the differential effect of the Government's proposals and the uncertainty caused to an industry that expected the Government to continue the well thought out deregulation proposals of the previous Government.

I thank my hon. Friend the Member for South Cambridgeshire (Mr. Lansley) for the detailed flaws that he exposed in the Government's proposals. Conservative Members were amazed to hear the hon. Member for Brent, North (Mr. Gardiner) sneer at the effect on London employment. In this his capital city, 4,500 people are employed in the industry. He did not seem to think that that mattered. He did not seem to think that it was even worth concentrating on the difference between gross profit and gross yield.

Mr. Gardiner

rose—

Mr. Fallon

Before the hon. Gentleman tries again, I remind him that we are talking here not about the difference between the effective rate levied previous and subsequent to the Budget, but about the difference in duty. The difference in duty for casinos with a yield of between £5 million and £12 million, is an increase of the order of 50 per cent., and for casinos above that, an increase of between 40 per cent. and 30 per cent.—not of the order that he suggested.

Finally, I come to the Financial Secretary's remarkable speech. We had some blustering about the Government not needing to consult. That was not what we heard last night from the Paymaster General. He took a pride in the consultation. He admitted that the Government got it wrong on individual savings accounts and on corporation tax. He took pride in the fact that the Government were ready to come to the House and correct the detail.

We heard a new theory on consultation tonight—that the Government can levy any duties that they think of, and, if they get them wrong, it does not matter. Happily for the casino industry, and happily for our future considerations on the Bill, the Financial Secretary has run up the white flag. She has accepted for the first time in our proceedings the principle of a Conservative amendment. She has said—we thank her for this—that the Government accept amendment No. 14. The first time that any Government have considered the principle of indexation for casino duty, she has said that a Labour Government have to be bound by it. Only a Labour Government could suddenly impose the kind of duties with which the industry were faced, which wiped 30 per cent. off the share value of two of London's leading operators.

The Financial Secretary pointed out quite fairly that, in some respects, amendment No. 14 may be technically defective. Fine. But she has accepted the principle of indexation. Never again will she or her Chancellor in this Parliament come to the Dispatch Box and impose that kind of 40 per cent. increase. Tonight, the Financial Secretary has run up the white flag and said that she accepts that gaming duties should for ever be indexed to the retail prices index. We thank her for that and for her surrender, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Fallon

I welcome this debate, which is necessary only because the Financial Secretary did not respond to some of the general criticism made by me and the hon. Member for Kingston and Surbiton (Mr. Davey).

When the Conservatives left office almost a year ago, we left in train a sensible, well-planned programme of deregulation, whereby there would be new casinos in different areas of the country and—picking up on the well-worn theme of modernisation—the casino industry would be modernised. We suggested liberalising the gaming industry by allowing, as the hon. Member for Kingston and Surbiton mentioned, a more enlightened membership system that would include postal and group membership, whereby groups of visitors from America and beyond could pre-book tours of London casinos. The programme would allow a modest measure of advertising—not nationally, but in telephone directories and hotels.

Finally, we advocated deregulating the industry to enable certain casinos to have more gaming machines. We suggested an increase from six machines to 20.

We should not pass the clause without raising those issues, because we will have no further opportunity to do so during the consideration of the Bill. I understand that almost all that deregulation has been put on hold. Measures that were expected to be implemented last October were delayed until this spring, and, as the Chancellor of the Duchy of Lancaster confirmed to the Select Committee on Deregulation this morning, they are further to be put on hold. The industry faces not simply a massive, unjustified increase of 40 per cent. in duties, but no guarantee of further progress in the deregulation that the previous Government set in train and to which we thought the successor Government were committed.

It would not be right for us to give the clause final approval without hearing from the Financial Secretary what proposals she has to implement the deregulation measures that we set in train. If she does not want to prolong the debate or encourage me to intervene again, I hope that she will explain to the Committee why the clause should stand part of the Bill.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.

To report progress and ask leave to sit again.—[Mr. Robert Ainsworth.]

Committee report progress; to sit again tomorrow.