§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Mike Hall.]
§ 11.1 pm
§ Mr. Alex Salmond (Banff and Buchan)
I am delighted to move the Adjournment of the House on a debate that is of substantial interest to many people in the country. Indeed, if my memory serves me correctly, Mr. Deputy Speaker, it might have been of interest to your late father.
Before I move on to the substance of the debate, may I say that as I will shortly have more time on my hands, I am intensely grateful to hon. Members in all parts of the House for speculating on what I might be doing with that time? As a long shot, I might move in as a compromise candidate for Speaker of the House. Despite the overwhelming demand in all parts of the House, that might well be a long shot.
A favourite's chance would be the proposition put to me by the hon. Member for West Ham (Mr. Banks). who suggested that I might front up the Scottish bid for the Euro 2008 championships—an attractive prospect, particularly if the hon. Gentleman gives me the benefit of all his experience after the glittering success of the English world cup bid. That could be the favourite's chance—but we must move on to the substance of the debate on starting prices.
The intricacy of the matter is important. Since January last year, the racetrack odds and margins have swung in favour of the punters—a remarkable occurrence—as a result of the opening up of the pitch positions at the racetracks, which has made the betting market at racetracks rather more competitive. That in turn led to better starting prices, which are available to punters in betting shops around the country.
Not surprisingly, the big bookmakers were not at all happy with the resultant fall in their profit margins. At last year's Levy Board annual general meeting, Rob Hughes, the chairman of the Levy Board, announced publicly that the big bookmakers, including John Brown of William Hill and Chris Bell of Ladbrokes, had telephoned him, complaining about the fall in their profit margins. More generally, they complained of "economic ruin" and "financial suicide".
I am reminded of Adam Smith's comment that whenever two or three men of business are gathered together, what takes place is a conspiracy against the public interest. What has taken place as a result of the moaning and groaning of the big bookmakers is most certainly a conspiracy against the public interest.
It came to pass on 22 May this year that the starting price executive, which has responsibility for administering the returns system, issued new rules. There had been no demand whatever for any change, except from the big bookmakers. There was no consultation before the new rules were instituted. As many have pointed out, the old system was not broke so there was no need to fix it, but the new rules were none the less imposed unilaterally by the starting price executive.
Under the new system, two starting price returners operate at race meetings and are each required to draw up a list of at least five bookmakers—a total of 10 per meeting. The list must be determined before the start of 510 racing. The final starting price is determined from a majority of the bookmakers' quoted odds. Under the old, more flexible system, the returners had assessed prices through the racecourse betting ring, for the betting ring as a whole. It was a more flexible system that was related to the new competition in the ring. It depended, of course, on the integrity of the starting price returners. It was a well-tried system that had worked extremely well. Above all, it was perceived by all concerned to be fair and above board.
What has been the outcome of the changes? The evidence to date clearly indicates that starting price returns have moved in favour of the bookmakers to the detriment of the punters, improving the profit margins of the large bookmakers. Evidence collected by the Racing Post shows that the overround—that is, the theoretical profit margin of bookmakers—has improved substantially under the new system. For example, at the bank holiday meetings, when there were 10 race meetings on 9 May, the evidence showed improved margins for bookmakers compared with the corresponding fixtures for 1999.
Who made the decision on the starting price executive? Two of its members are from the Press Association, two from Trinity Mirror and two from Satellite Information Services. The chairman of the executive is Mr. Terry Ellis of S1S, who was once employed by Ladbrokes. The big bookmakers have a substantial interest in SIS. As The Observer pointed out, the perception of the betting shop punter must be thatthe arrangement must seem as clean as coal.What has been the reaction to the changes? As John McCririck of Channel 4 has pointed out—a weel kent face as we would say in Scotland—every body, every responsible person and every spokesperson in racing, apart from SIS and the big bookmakers, are opposed to the changes that have taken place
Keith Elliott, an independent member of the Levy Board appointed by the Home Secretary, describes the new system asa scandal and a disgrace.He added:It is not appropriate for SIS to have such a prominent role in the determination of starting prices. We cannot let the fox look after the chickens. It will certainly damage customer confidence.He said:I would like us to go back to the previous system…That system worked well. It did what it was designed to do—return the prices that were available to punters on the racecourse.Viscount Falkland said thatthis development has caused monstrous damage to the perception of…racing…This is the most dangerous development in racing in recent times. It has to be changed. I hope that punters around the country will clamour for it to be changed.—[Official Report, House of Lords, 14 June 2000; Vol. 613, c. 1737.]To show that the dividing lines on these matters are not purely between bookies and punters, I shall cite Andy Smith, an on-course bookmaker, who says:It's being wholly done in the interests of Ladbrokes, Coral and Hill and absolutely against the interests of their betting-shop customers.Rather disturbingly, when Channel 4's "The Morning Line"—an estimable programme—broadcast an interview with Keith Elliot expressing his views, the reaction of Terry Ellis and SIS was not to debate the issue but to put 511 lawyers on the job. They extracted an apology from "The Morning Line", but I would suggest that instead of adopting these bully-boy tactics, Mr. Ellis should be prepared to debate the issue.
Mr. Ellis has indicated that he will stand down as chairman of the starting price executive. I have a fellow feeling for people who take that decision. That being so, I shall not say as much about Mr. Ellis as perhaps I would have done before he made that particular decision. However, people in public life should be prepared to debate matters of public interest and should not censure debate by calling in lawyers.
The fact that Mr. Ellis was a senior executive for Ladbrokes is a substantial matter of concern when he becomes chairman of the starting price executive, which introduces unilaterally a system which is to the benefit of Ladbrokes, Hill and the other big bookmakers. These are matters of public concern and they should be debated without fear or favour, which is, I hope, what I am doing and what the Minister will do when he replies.
The Minister is well known as a friend of the betting shop punter. He is concerned about fairness and competition, and ensuring that people get a decent deal. I hope that his reply will indicate substantial concern on the part of the Government about what is going on.
I believe that what is required is a return to the old system—it worked. It was perceived to be fair and provided a reasonable deal for punters. We also need a reform of the starting price executive itself. It should have an independent chairman, two representatives from the Press Association, two from Trinity Mirror and two from the National Joint Pitch Council. Crucially, there should be no place for SIS, except perhaps as observers. The starting price executive needs to be perceived as clean and above board and definitely not as representing the interests of the bookmakers.
I suggest that those reforms should be instituted now. With great respect to the Minister, I do not think it is good enough to wait for Sir Alan Budd's committee on gambling which is not due to report until next summer. There are rumours, after all, that Hill and Coral are due to float on the stock market and that Labrokes' betting operation could be floated off, too. It is reasonable to believe that one of the reasons for the changes is to see profit margins increase so that there can be big pay-offs when the companies are floated. If that is so, it should not be at the expense of the betting shop punter.
I shall summarise my argument. The new starting price system introduced on 22 May this year has undoubtedly proved to be to the bookie's benefit and to the detriment of punters in the shop. The new system has improved profit margins for the big bookmakers and led to worsening starting price odds for the betting shop punters. The starting price executive has let punters down by introducing the new system; and the fact that Terry Ellis, the chairman of the starting price executive, is a former Labrokes employees and that his company, SIS, is substantially owned by the big bookmakers gives reasonable grounds for concern. As Keith Elliott, the independent member of the Levy Board, said:We cannot let the fox look after the chickens.512 If we are serious about protecting the interests of punters and defending the integrity of racing, the new starting price system must be scrapped. The big bookmakers already get a fair deal from racing; they should not be allowed to rip off the punters.
§ The Parliamentary Under-Secretary of State for the Home Department (Mr. Mike O'Brien)
I begin by congratulating the hon. Member for Banff and Buchan (Mr. Salmond) on raising an important issue. Horse racing and betting on horse racing have a long and honourable history in Great Britain. He is one of many hon. Members who have taken an active interest in racing—attending race courses and, no doubt, betting either on or off course. I also congratulate him on his decision to retire. I hope that he has a long and honourable retirement and spends a lot more time at the races rather than in this place causing problems to Ministers.
I am glad that the hon. Gentleman has brought this issue to the attention of the House, because there is much concern about it. The turnover on horse race betting is an important matter for the Government and for the economy as a whole. It helps to support 8,000 licensed betting shops in Britain, and a growing internet and telephone betting industry in which many people are employed. The total amount staked on horse races with off-course bookmakers in 1999–2000, including bets with the Tote, was about £5 billion. That is an indicator of the widespread popularity of horse racing, its importance and its value to the Exchequer as a source of revenue.
As hon. Members know—some to their cost—the tax on off-course betting stands at 6.75 per cent. Government revenues from off-course horse race betting therefore approach £350 million a year. What happens in the industry is important to the Government.
I make no secret of my concern at what the hon. Gentleman has said tonight. There has been a debate in the racing industry and in the media for some time on an issue that I have monitored closely, including by watching the estimable John McCririck, the racing commentator, in full flow on television on a number of occasions expressing his concern about the dangers to the integrity of the industry and the need to protect the punter.
The way in which on and off-course betting is organised developed over the years and has largely stood the test of time. It has a reputation for integrity. It is plainly important that the majority of punters, who place bets in the betting shop rather than on the race course, know that they are getting a fair deal. It is also important that off-course bookmakers can run a commercially viable operation. There is therefore a balance to be struck.
The organisation of off-course betting is not always understood by those who know little of the industry. Leaving aside betting on the Tote, which is a separate system, it is up to the punter at the betting shop to decide whether to back a horse at starting price or at whatever odds the bookmaker offers. As a race approaches, betting shops will offer fixed odds, based on early shows of the betting on the course. For some races, they might offer fixed prices throughout the day. In some cases, especially for major races, such as the National or the Derby, the bookmaker will offer ante-post prices on the horses for days, weeks or even months in advance. The odds that the betting shop offers on a horse will move up or down according to the state of the market.
513 Betting shop customers have a choice and can place their bets at fixed odds. However, many choose not to do that; instead, they place their bets at the starting price—the odds given by the bookmakers at the race course when the race is about to start. When punters place their bets, they do not know exactly what the starting price will be and therefore how much the bookmaker will pay them if they win.
The key question, to which the hon. Member for Banff and Buchan has rightly drawn attention, is the maintenance of public confidence in the way in which the starting prices are worked out. It is important that punters who bet on the starting price get a price that fairly reflects the prices that are available on the course just before the off, and that the way in which the price is calculated is transparent.
Arrangements for working out starting prices depend on starting price returners at the race course. They note the varying prices that bookmakers offer in the betting ring just before the start of the race. They must decide on representative prices for each horse and notify betting shops around the country of them. The task is organised by the starting price executive, which brings together the three major media companies—the Press Association, Trinity Mirror and Satellite Information Services—which employ the returners.
The arrangements have never been directly a matter for the Government. Nevertheless, as the hon. Member for Banff and Buchan said, some recent changes have been made; I understand that the executive made them in May. The aim was to offer a more transparent, accurate and efficient method of assessing starting prices. The returners had previously tried to take account of the prices offered by a wide range of bookmakers in the ring. That is difficult to do properly and fairly, especially in the limited time available in the run-up to a race.
The starting price returners now concentrate on a smaller sample of bookmakers. Allegations have been made that that reduces the starting price, of which the starting price executive notifies betting shops around the country. If that were so, it would shade odds at which off-course bookmakers paid their starting price customers. The bookmakers would be richer and the punters would be poorer. Tonight and on other occasions, I have heard arguments to support that proposition.
It is said that other changes that the National Joint Pitch Council made to controls on the betting ring a year or two ago led to a more customer-friendly betting market on the course. It is suggested that the restructuring of the on-course betting market led to an overall increase in the starting prices of which betting shops are notified, and that there was therefore an incentive for off-course bookmakers to do something about circumstances in which their profits were being cut.
Off-course bookmaking interests have always hedged their bets with an on-course bookmaker to manage their liabilities. Consequently, the weight of their money may affect the starting price. However, it has now been suggested that, because the new starting price system takes account of fewer on-course bookmakers, who are thus easier to identify, the larger off-course bookmakers may be able to hedge their bets more strategically with a view to manipulating the starting price in a way that is favourable to their business.
514 I have listened carefully to the comments of the hon. Member for Banff and Buchan and other observers on the matter. I understand their anxieties and I am watching developments with great care and not a little concern. If the punter is being ripped off by the bookmaker, the Government may need to express their views strongly to the industry. I am well aware that early signs show an apparent decrease in the starting prices at some races compared with those returned for the same races in previous years. The position will vary from course to course and race to race. However, I am advised that it is too early to say that the evidence has conclusively proved that there is a problem in which we need to intervene. We are monitoring developments with a great deal of concern and care.
Our job as a Government is to ensure that punters are not ripped off. However, we will not intervene in the market unless the evidence is clear. I am watching matters with interest and concern, but the true effect is unlikely to be apparent yet.
§ Mr. Alan Meale (Mansfield)
I congratulate the hon. Member for Banff and Buchan (Mr. Salmond) on raising an important matter. I draw the attention of my hon. Friend the Minister to the evidence given to the Select Committee on Home Affairs—of which the hon. Member for Banff and Buchan was a key member—by Mr. Peter George, the then chief executive on betting of Ladbrokes, who admitted openly that the company was proactive rather than reactive in terms of hedging bets on race courses. The major bookmakers already have considerable influence on the course in lowering the price for off-course betting, which the large bookmakers control. In terms of the geographical remit to which my hon. Friend refers, the problem will not show up, as the large bookmakers have that remit right across Britain. I take this matter very seriously and it is an important example of how, yet again, the big bookmakers are trying to take advantage of the ordinary punter by hedging bets even further before there is a return in the betting shop.
§ Mr. O'Brien
My hon. Friend puts his point strongly and it is right that Members should express the concerns of constituents. As it stands, the Government have no legal base on which they can intervene in this market. If we wanted to intervene, we would have to take powers and pass legislation. However, I am sure that the industry and the bookmakers will listen with great care to what is said in the House.
§ Mr. John Greenway (Ryedale)
May I also congratulate the hon. Member for Banff and Buchan (Mr. Salmond) on raising this matter, which is an issue of concern? I have a great deal of sympathy with what the Minister has said. I do not see a basis on which he can intervene. However, if the matter persists—quite apart from the prospect of considering whether, as an outcome of the gambling review, this may be a matter for legislation—would he consider referring the matter to the Secretary of State for Trade and Industry and the competition authorities? If the consumer—the punter—is being disadvantaged by this kind of practice, the House ought to unite behind a call to do something about it.
§ Mr. O'Brien
I hope that the bookmaking industry is listening with care to the debate. It is important that we 515 look at the issue of confidence in the industry. It is not just a matter of doing things the way that they ought to be done, or doing things honestly. There is also a question of perception; things must be perceived to be open and above board. There should not be public concern. It is important that the punter believes that, when he places a bet, he is getting a fair deal. There is concern about the way in which things are done. The hon. Gentleman is right to say that the odds at which punters are prepared to back horses and the odds that bookmakers are prepared to offer them are not things that the Government regulate.
§ Mr. Salmond
I welcome the Minister's concern, and his words should be listened to carefully by those concerned. I welcome also the fact that Members on both sides of the House share that concern. However, let us say that we were not talking about betting shops and race meetings but about the financial markets. If we had a situation in which a company—in this cases SIS, which is owned by the big bookmakers—were in a position to regulate the profits available in the market, that would not be allowed legally in the financial markets. If it would not be allowed in the financial markets, why should it be allowed in this market, which affects a substantial number of people in the UK?
§ Mr. O'Brien
The hon. Gentleman knows well that the law has a different approach to gentlemen's agreements or gambling than it does to contracts involving financial matters, such as deals and agreements in the City. To that extent, there has historically been a different legal basis for the approach to these issues. The hon. Gentleman needs to be careful; he appears to be suggesting going much further than I think that he really wants. I think that he is identifying a particular concern that a number of punters feel about a particular issue. In his intervention, he almost seemed to be saying "Let us go much further, and regulate, on a legal basis, all contracts under which these bets are placed." I do not think that he wants to do that.
I think that, to some extent, this is a commercial matter between bookmaker and customer. If the punter does not accept the terms of one bookmaker, he can always go to another, at least in theory. Of course, he could also use the Tote—and, for obvious reasons, the Government want to encourage use of the Tote.
I accept that the betting industry is important, and we want it to succeed. I understand the hon. Gentleman's concern about something that is important to the success and integrity of the industry as a whole. After all, the industry trades on its integrity, and, as I have said, the industry is important to Britain. If it compromises its integrity, it damages our economy and the Inland Revenue's income. We are therefore watching what is happening very carefully.
Integrity must be both real and perceived to be real. When people do not believe that integrity is present, even if in reality it is, they will be reluctant to rely on it. The bookmakers need to remember that.
I was glad to learn recently that the starting price executive had responded to concern expressed in the racing press and elsewhere. It has said that it will commission independent consultants—a major accounting 516 firm—to undertake a review of the new SP system, to see how it is working in practice and to compare its operation with the previous arrangements. It has also said that it will use two SP returners at all race meetings except minor ones that do not feature in the betting shops' service. Each returner will monitor a minimum of five bookmakers, and the two will compare the prices that they have recorded and determine the SP.
I welcome the executive's announcement. I trust that it will take account of what has been said here tonight, and that, when it reaches its conclusions with the help of the accountants, it will consider not just the views of those independent consultants, but the views of hon. Members. If there is a problem, it is important for it to be identified, and it is important for the bookmakers to be prepared to address it.
There is a possible issue of consumer protection. The Government have set up a review of gambling legislation as a whole. The review body is chaired by Sir Alan Budd, and is due to report next summer. It has extensive terms of reference, which include a requirement to make recommendations on the kind and extent of regulation that is appropriate to gambling activities in Great Britain. That wide remit will enable Sir Alan and his team to consider whether there might be controls in this area, and, if so, what they should be.
No doubt Sir Alan would want to consider evidence on this matter if it were put to him. That would be part of the whole process of ensuring that the gambling industry has not only integrity in reality, but a reputation for integrity. We are acting, at some degree of risk, because there is public concern—because people feel that they may be ripped off by bookmakers. If that is the case, we want to ensure that the bookmakers address the issue. They may want to do that by convincing people that what they are doing is proper, fair and appropriate: that is the approach that they are taking. However, they may well have to conclude that, whether what they are doing is fair or not—it may well be fair—they must bear in mind the perception that people may have, and therefore consider whether to adopt a particular course.
§ Mr. O'Brien
My hon. Friend makes an interesting point. Although the issues will have to be examined, I shall certainly bear in mind what he said and consider whether it is appropriate to take that action.
The hon. Member for Banff and Buchan is to be congratulated on initiating this debate. As he will know, Adjournment debates usually involve a Minister and only one other hon. Member. For this debate, however, at a late hour, quite a few hon. Members have stayed because they are seriously concerned about the issue. It is right that we should have this debate, and it is right that others should listen to it.
The Government are concerned that future gambling legislation should properly balance the interests of business with the need to protect consumers and the 517 public. I assure the hon. Member for Banff and Buchan that the Government are perfectly prepared to act in the interests of betting customers and of the industry as a whole if there is a need to do so. The Government are watching the situation with care, as are other hon. Members. When the House returns in the autumn, if we 518 need to have another debate on the issue because there is still serious concern about it, I am sure that the bookmakers will realise the seriousness of the situation
§ Question put and agreed to.
§ Adjourned accordingly at twenty-nine minutes to Twelve midnight